1 INTRODUCTION

1.1 Purpose

The U.S. commercial motor carrier industry is facing a number of challenges
that threaten to erode its productivity and compromise the high level
of service currently provided to shippers. Heightened security presents
a challenge, particularly for carriers of hazardous materials. Marketplace
shifts and deteriorating transportation system performance can contribute
to difficult operating conditions for motor carriers. Other challenges
include regulatory actions concerning safety and the environment that
could potentially impose significant cost and service disruptions on
trucking companies.

Because the motor carrier industry is so vital to the U.S. economy,
these challenges demand attention. The purpose of this study is to identify
and assess the challenges, and to discuss possible public and private
sectors strategies to mitigate their negative effects.

The remainder of this section presents an overview of the study findings,
focusing on possible solutions. Section 2 presents an overview of the
commercial motor carrier industry, including a description of the industry’s
principal segments, their basic operating characteristics, and some
data on the size and level of activity of the various segments. Section
3 describes the study methodology, including the selection of issues
for analysis and the characteristics of the organizations that were
interviewed as part of this work. Sections 4 – 11 discuss each
of the major challenges and issues assessed in the study, including
the causes of the issue and its effects on the motor carrier industry,
possible solutions, and needs for additional research. The last section
is a complete summary of the study findings.

1.2 Summary of Findings

According to the motor carrier industry experts interviewed for this
study, the issues that pose the greatest threat to trucking productivity1
and service quality are: rising insurance costs, changes to the hours
of service rule, and fuel price volatility. Nearly all interviewees
placed these three issues near the top of the list in terms of importance.
Interviewees identified three other issues as being somewhat less pressing
but potentially having significant negative effects: urban congestion,
new emissions and fuel standards, and driver waiting and loading times.
Two other issues assessed in this study, security concerns and delays
at port terminals, were not considered important by most interviewees,
the former because major new security regulations have yet to be implemented,
and the latter because the issue affects only a small segment of the
motor carrier industry. A summary of the findings for each major issue
studied is provided below.

Rising Insurance Costs – Rising insurance premiums
are caused by two factors: poor performance of insurance company investments
and an increase in expected pay-outs due to rising damage awards and
the effects of 9/11. Many carriers feel the problem can only be solved
though tort reform to limit damage awards. Carriers have responded to
rising insurance premiums by relying more on self-insurance and forming
risk retention groups. Many have also sought to bring down insurance
rates by reducing their accident risk though driver safety programs.
There may be a government role in promoting the expansion of existing
industry safety programs to share information and voluntarily achieve
higher safety standards.

Hours of Service Rule Changes – The nature of
the expected HOS rule changes
is not publicly known at this time. While HOS
rule changes would likely increase highway safety, more restrictive
rules could make vehicle and driver scheduling less flexible, and possibly
raise the cost or lower the quality of service that trucking firms can
provide. The greatest effect of a changed HOS
rule would fall on the regional and long-haul for-hire truckload firms.
Alternative approaches to regulating HOS
have been proposed. Some policy-makers have suggested that the Fair
Labor Standards Act should be applied to the motor carrier industry
to require overtime pay. Another alternative, possibly to complement
HOS regulations, is a voluntary
program that encourages the use of best practices. Such a program could
encourage information sharing and adoption of safety performance management
practices through a branding program that would recognize firms that
achieve a superior level of safety performance.

Notes on Technology

While we do not explicitly address the
effects of technological change in our discussion of productivity,
it is important to note the following:

New technologies, such as advanced materials and alternative
fuels, will likely increase the efficiency and productivity
of the motor carrier industry over time.

In many cases, new technologies employed to make the motor
carrier industry more efficient will also improve safety, reduce
vehicle emissions, or result in other socially desirable outcomes.

Fuel Price Variability – Many motor carriers
have little ability to absorb rapid changes in fuel costs. Historically,
trucking firm bankruptcies have been closely correlated with fuel price
increases. Larger motor carries employ a number of strategies to hedge
against changes in fuel price, including the use of swaps and options,
or purchasing fuel on the spot market or at the wholesale level. While
many view public sector intervention in the issue of fuel prices as
inappropriate, several bills have been introduced recently in Congress
that attempt to mitigate the effect of fuel price changes (particularly
on smaller carriers) by requiring carriers to apply a fuel price surcharge
on shippers.

Urban Congestion and Travel Time Reliability –
Urban congestion causes an increase in travel times for motor carriers,
and worse, a reduction in travel time reliability. If possible, carriers
respond to congestion by selecting alternative routes, shifting to off-peak
periods, or scheduling trips with a greater travel time buffer. A variety
of strategies can reduce the extent of congestion or at least make it
more tolerable. For example, truck drivers and dispatchers can make
use of real time traffic information systems to help minimize delay.
Greater benefits could be realized if carrier route planning systems
were integrated with measures of travel time reliability. There has
been recent interest in truck-only lanes or truck freeways as a way
to serve goods movement, reduce congestion, and improve highway safety.
Toll-financed truck facilities are being considered in Southern California
and Virginia.

New Emissions and Fuel Standards – There is
widespread concern that the new emissions standards for heavy-duty engines,
which began October 1, 2002, will cause lower fuel economy, lower horsepower,
and the possible need for more frequent engine maintenance. Because
of these side effects, particularly uncertainty over engine reliability,
motor carriers have been reluctant to purchase the newly certified engines.
Instead, fleets have been purchasing larger numbers of older engines,
and also holding on to their current trucks longer than they normally
do. It is too soon to determine how the new emissions standards have
affected fuel economy. However, it appears that the industry’s
fears about fuel costs and maintenance problems with the new engines
have been exaggerated. The emissions standards that will take effect
in 2007 pose a far greater challenge for engine makers, and may generate
more concern about reliability and performance.

Driver Waiting and Loading Times – Long waiting
and loading times for truck drivers impose substantial costs on the
motor carrier industry. For the most part, this problem affects for-hire
truckload carriers only, and according to a Truckload Carriers Association
study, is worst in the grocery sector2.
At its core, the problem results because shippers do not directly bear
the cost of the driver and equipment delay they cause. One possible
solution is to change shipper/carrier contracts so they address wait
times and allow for detention charges if necessary. Other strategies
involve changes to loading dock practices, such as allowing 24-hour
delivery or providing a mechanism for the delivery of freight that arrives
early. Some have argued that cooperative industry efforts or voluntary
programs could help reduce wait times, such as an industry International
Standard Organization (ISO)
standard addressing loading and unloading practices in detail.

Security Concerns – The events of September
11, 2001 focused attention on trucking security, including border crossings,
hazardous materials transport, potential contamination of food shipments,
and the potential use of a truck trailer to deliver a weapon. Although
the heightened focus on security has changed the operating environment
for motor carriers, our interviews suggest that, at the moment, motor
carriers are not generally feeling adverse productivity effects. Many
carriers appear to welcome the increased emphasis on security. New security
procedures and regulations for trucking are expected, however, and may
result in more significant industry effects. For example, new hazmat
carriers regulations being considered include requirements for hazmat
carriers to provide armed escorts, pre-notify states about hazmat shipments,
track trucks using GPS
transponders, employ e-seals, and equip tractors with electronic ignition
locks. If adopted, the cost and productivity effects of some of these
proposals (such as armed escorts) would be significant. Some carriers
have suggested that federal action is needed to revise the definitions
of hazardous materials because the current definitions are excessively
broad and may prevent attention and resources from being focused on
shipments that pose the greatest threat

Delays at Port Facilities – Delays at port facilities
and poor chassis condition at ports are serious issues, but affect only
a small segment of the motor carrier industry. Similar to shipper loading
docks, port facilities can impose long wait times on truckers with impunity
since the ports do not bear the economic cost of the delay. But the
long wait times at port facilities are caused by a set of factors that
are fairly distinct from the wait times encountered at other shipper
facilities, including lack of sufficient gates, limited hours of terminal
operation, poor chassis maintenance, connector road congestion/poor
roadway design and vessel bunching. Overcoming some of the barriers
to more efficient port gate operation, such as longer operating hours
and full automation of paperwork, will require a negotiated settlement
between labor and port management. Other more practical solutions include
use of reversible gates, two-stage gates, specialized gates, or terminal
staging areas. Some policy makers have proposed to fine terminal operators
whose operations regularly require port drayman to wait in long lines
to enter terminals, and such a bill was recently signed in California.
Several states have passed laws to address the issue of poor chassis
condition at ports, and ATA
has urged implementation of a national rule on chassis roadability.

2 INDUSTRY OVERVIEW

Trucking is the backbone of the nation’s freight system, carrying
85 percent of domestic cargo by value and 70 percent by weight.3
Even freight carried by other modes often depends on trucking to provide
access to air cargo, railroad, and seaport terminals. The flexibility
of the motor carrier industry has allowed trucking to serve nearly every
freight transport market, meeting shipper demands with high levels of
service.

The motor carrier industry has evolved tremendously since the Motor
Carrier Act of 1980. As a result of deregulation, trucking rates declined
significantly, and a more responsive and flexible trucking industry
emerged. The elimination of regulatory barriers to entry, and particularly
the requirement for route and commodity-specific operating authority,
permitted the rise of the truckload sector that has brought huge gains
in productivity. It was this development that allowed guaranteed just-in
time (JIT) deliveries and all
the other features that brought the evolution of advanced logistics
systems and supply-chain management.

Over the last decade, growth in trucking ton-miles has accelerated
significantly and at a faster rate than GDP,
but in line with growth rates in manufacturing. As shown in Figure 1,
both goods production and intercity trucking ton-miles have nearly doubled
since 1980.

Figure 1: Change in Trucking Ton-Miles and U.S. Goods Production
Since 1980 4

In addition to absolute growth, trucking has been gaining a larger
share of the freight market. Trucking’s share of domestic intercity
freight ton-miles (non-pipeline) grew from 29 percent in 1980 to 35
percent in 1998.5
Reasons for this mode shift include:

Just-in-time inventory practices. Manufacturers that employ JIT
systems strive to minimize on-site inventory by coordinating their
supply deliveries with production schedules. This requires smaller,
more frequent and more reliable inbound shipments – characteristics
that typically favor trucking over rail.

Manufacturing and warehouse location patterns. Manufacturing and
warehousing have migrated from urban areas to suburban or rural locations,
often in search of cheaper land and labor. Longer hauls by truck carriers
are required to connect more distant supply, production and consumption
facilities. At the same time, these facilities are increasingly inaccessible
by rail.

Reliable highway network. The completion of the Interstate Highway
System has linked virtually the entire nation by a safe and reliable
network of four-lane highways ideally suited for truck transport.

The flip side of the competitive, responsive trucking industry is that
some carriers are very sensitive to changes in the marketplace and regulatory
environment. Profit margins among publicly traded truckload motor carriers
are typically close to or under five percent. Driver turnover is high
in some industry segments. As a result, it’s possible for significant
changes to the business environment to force large numbers of motor
carriers into bankruptcy. Because so much of the U.S. economy relies
on trucking, such a development could ripple throughout the economy
with profound effects.

The remainder of this section further describes the trucking industry.
We sub-divide the industry into its principal segments, describe their
basic operating characteristics, and provide some data on the size and
level of activity of the various segments. The principal sub-divisions
of the industry, together with associated revenue and VMT
estimates for 2000, are shown in Table 1.

There are three major lines of division within the industry. One is
between long haul and short haul: between companies that provide primarily
intercity services and companies that provide service within a metropolitan
region and its outlying areas and perhaps to nearby cities. Second,
there is the divide between the for-hire and private-carriage segments.
The former is the firms that move the goods of others for payment–
probably what most people think of as the “trucking industry.”
The latter are firms that use their own trucks and drivers to move their
own goods. When their trucks are returning empty, many private carriers
will move the goods of others for hire; some will not. The third division
splits the for-hire segment into two principal classes: truckload (TL)
and less-than-truckload (LTL).
TL carriers move truckloads of
goods direct from origin to destination. LTL
carriers consolidate, haul, and distribute goods through a network of
terminals in less–than–truckload lots. These segments are
discussed below in greater detail.

2.1 Long Haul and Short Haul

One major division within the industry is between long haul and short
haul. Selecting a point of demarcation is inherently somewhat arbitrary.
For the estimates in Table 1, we have chosen 150 miles as the average
length of haul that is the border between short haul and long haul.
Note that many industry observers will speak of a distinction between
local and short haul carriage, the latter having longer moves. Most
truckers also make a clear distinction between regional and long haul
operation, the latter having the longer runs. The estimates in Table
1 do not make these distinctions.

2.2 For-Hire Service

The major division in the for-hire industry segment is between truckload
(TL) and less-than-truckload (LTL)
service. The distinction is a simple one. A truckload firm moves a shipment,
a full truckload, or close to it, directly from origin to destination.
A LTL operation collects
small shipments from local pick-ups, moves them over the road between
terminals in truckloads, breaks them up at the destination terminal,
whence it makes local deliveries. For-hire firms also include household
goods and parcel-delivery firms.

Truckload companies

Total TL revenue is about $110
billion, of which about $97 billion is from long-haul service. These
firms own an estimated 770,000 tractors; of these, approximately 660,000
are in long-haul service. There are approximately 53,000 TL
firms. This is a stark contrast with the LTL
sector where there are fewer than 1,000 firms in total and less than
40 firms account for almost all the business. Among the TL
firms, 40,000 are very small, with five or fewer tractors. This group
includes the owner-operators, those that are genuinely independent firms
with their own customers. There are roughly 300,000 owner-operators
in total, but the great preponderance of them are working under leases
to larger TL companies such that
they are, in effect, part of the capacity of those companies and not
firms seeking business for their own account.

Aside from the owner-operators, there are still 13,000 or so TL
companies, a large number compared to any other segments of the for-hire
business. As shown in Table 2, a substantial share of the revenue is
with small and middle-sized TL
firms. Assuming annual revenue of $125,000 per tractor8,
a company with 100 tractors has revenue of $12.5 million—not a
big company. But firms with fewer than 100 tractors have around 43 percent
of sector revenue. If we go up to 500 tractors, revenue of $62.5 million,
we find 68 percent of total TL
revenue going to firms with less revenue than that.

Table 2. Truckload Carrier Revenue by Firm Size

Number of
Tractors

(millions)
Revenue

Percent

1 – 5

$9,768

8.9%

6 – 24

$12,369

11.2%

25 – 99

$25,597

23.3%

100 – 499

$27,250

24.8%

500+

$35,059

31.9%

Total

$110,042

100%

The truckload business is an example of an industrial sector where
something like atomistic competition actually prevails. This fact is
reflected in the tight average operating ratio of this segment, 95.0
percent. A truckload company is analogous to a tramp-steamer company
in the ocean-freight business. The trucks do not operate on fixed routes
and schedules; they go where the loads are. It is a bit difficult to
generalize about operating patterns of TL
firms. Some firms will concentrate in a particular region, some in very
specific traffic lanes, and some will criss-cross the nation, taking
the best loads, in a business sense, as they find them. A TL
company’s dispatching staff live in a complex world, where they
are constantly trying to make optimal decisions as to how to allocate
their equipment and drivers to the available loads, bearing in mind
a host of cost considerations.

Regarding the 40,000 owner-operators noted above, those with five or
fewer tractors can support neither a sales force nor a dispatch center.
Typically, such companies function in one of two ways. Some of them
will get their business from one or two customers with whom they have
contracts, or some kind of arrangement, to haul loads among a few points.
Others may put their principal reliance on trucking brokers who provide,
in effect, their marketing and dispatch functions. As companies increase
above the minimal size, there will be at least one person devoting time
to sales and dispatch, and then as revenues increase, there will be
groups for these functions.

Truckload companies do not have terminals in any meaningful sense.
Most companies will have a home terminal, but it is principally a site
for offices, maintenance facilities, and a place to park tractors and
trailers when they are not on the road. Some companies that serve large
geographic areas will have multiple bases, but others will not.

Note that many TL companies are
plagued with a very high rate of driver turnover; retention of drivers
is a major issue in the TL sector.
This is not generally the case in LTL
and private operations. Part of this stems from better pay and benefits
in these latter sectors; and part of this is because many of these companies
either employ union drivers or must compete with union employers to
obtain good drivers. But high driver turnover among TL
carriers is also likely due to the irregular and often-shifting work
times of TL operation and the amount
of time on the road and away from home that drivers must incur.

Less-than-truckload companies

As already noted, LTL
companies are a sharp contrast with TL
firms, both in degree of concentration and in mode of operation. Thirty-five
companies receive 85 percent of LTL
sector revenue. The seven largest LTL
concerns have combined revenue of $13.7 billion, about half the sector
total.

While the LTL sector
has a much higher degree of concentration than does the truckload business,
it is much smaller, with total revenue of $27 billion, compared to about
$110 billion in the TL sector.
There are over almost 500 LTL
companies that list themselves as having average hauls of less than
150 miles. Some of the service they provide would be local LTL
movement in the sense that actual origin and destination are within
150 miles of each other. A good part of their service would also be
provision of pick-up and delivery service under contract with a larger
LTL company that uses
a local concern to avoid investing in a terminal in that area.

In order to operate its business, whether regional or national, a LTL
firm requires a set of terminals. Each terminal will have a force of
pick-up and delivery drivers. Typically, they go out in the morning
with loaded trucks, make deliveries, spend the afternoon picking up
loads, and return to the terminal at the end of the day with outbound
loads. These loads are moved across t Wolfe, Michael, for delivery the
following morning, when the pick-up and delivery cycle is repeated.
Some loads may be going out of a carrier’s region; they would
be handed over to another LTL
firm for onward movement to a destination at one of the other company’s
terminals. That is the general pattern of operation in a regional LTL
company.

For the “national” LTL
firms, those that provide long-haul service and have average lengths
of haul in excess of 1,000 miles, the operation is somewhat more complicated.
These companies will have a set of major hub terminals, each of which
has a large number of satellite terminals. Line-haul moves will often
be from satellite to hub to hub to satellite. In some circumstances,
a trailer may go directly from a satellite to a hub in another region.
Where the line-haul is more than 500 miles, moves are frequently handled
with either teams or relays. (The national LTL
companies are usually thought of as Roadway Express, Yellow Freight
System, ABF Freight System, Overnite, and FedEx Freight.)

2.3 Private Carriage

For-hire truckers are in the business of carrying other people’s
goods. Private carriers are firms that choose to carry their own goods.
Generally, private carriers do this because they are very sensitive
to requirements for timely and reliable service, either because of their
own methods of supply-chain management or those of their customers.
Some private carriers also use their drivers to handle delivery to customers
as part of their customer-relations efforts.

Private carriers pay a price for moving their own goods. The alternative
in most cases would be for-hire truckload service; private carriage
is somewhat more costly than truckload – a premium of a little
more than ten percent on a truck-mile basis.9
Several factors may account for this difference: the high level of service
that private carriers provide themselves which would include a higher
ratio of empty miles to loaded miles; economies of specialization realized
by truckload companies; and generally more expensive pay-and-benefits
packages for private drivers. Many private carriers try to offset this
cost differential by seeking loads on a for-hire basis for their backhauls
that would otherwise be empty.

Information on private carriers is more limited than is the case with
for-hire carriage. Private carriers are not treated as trucking companies
by many data gathering efforts. Private carriers may range in size from
a handful of small trucks used in local delivery to thousands of tractors
in long-haul service. We estimate that about 700,000 tractors and drivers
are employed in private, long haul service. Perhaps 100,000 tractors
are in short-haul service together with a much larger number of straight
trucks. Imputed revenues have been estimated for private carriage: $123
billion in long-haul service and $122 billion in short haul service.10

An important point is that private short-haul operations include a
great deal of truck movements that do not involve carriage of goods.
These involve trucks that carry people and equipment to places where
they are needed to provide services of one kind or another. This includes:
service trucks belonging to utility companies; trucks of a variety of
types of service contractors—plumbers, electricians, roofers,
landscapers, etc.; trucks taking crews and equipment to construction
sites; dump trucks; trash trucks; and other like vehicles. Otherwise,
a great deal of short-haul private carriage is local distribution—movement
of snack foods, baked goods, beverages, fuels, etc. to wholesale or
retail points, and retail deliveries to households and offices of many
kinds of goods.

It is difficult to generalize about private-carriage patterns of operation.
In short haul service, a driver starts from a store or warehouse and
makes a circuit of deliveries in the region, frequently covering the
same approximate route every day. In long-haul operations, there can
be considerable variety. A firm may ship, for example, from a single
national point to a small number of regional distribution centers which,
in turn, ship to a large number of stores or more distribution centers.
Multiple drops are quite common: a driver leaves a factory or warehouse
with a full trailer and makes several delivery stops before returning
home. Some runs of this nature require the driver to spend several days
on the road, just as a TL driver
would. There will be other private operations in which the drivers never
spend a night away from home.

Some firms arrange for their private carriage on a contract basis;
they outsource their carriage to a contractor, usually a truckload company
that dedicates an agreed number of trucks and drivers to a private carrier's
service. Since the equipment and drivers are under the control of the
private carrier, such an operation behaves in the same way as any other
private carrier.

3 STUDY METHODOLOGY

3.1 Issue Identification

The intent of this study is to focus on the most important issues facing
the motor carrier industry. A screening process was used to identify
these issues. We first created the following comprehensive list of all
possible issues through a review of industry trade publications, discussions
with industry experts, and internal staff brainstorming.

Urban congestion and travel time reliability

Access to port facilities

Hours of service rules

Security concerns

Safety concerns and NAFTA

Driver turnover

Rising insurance costs

New emissions and fuel standards

Truck size and weight limits

New ergonomics regulation

Introduction of truck toll roads

Fuel price volatility

Long driver waiting and loading times

Shortage of vehicle mechanics

Growth in time-sensitive delivery requirements

Growth in intermodal/containerized freight

Demands for new information technologies

3.2 Issue Selection

We identified the following criteria for assessing the importance of
each issue and the appropriateness of including the issue in the study:

The issue has potentially significant effects on motor carrier productivity.

The issue is an emerging issue, likely to grow in importance in
the future.

The issue is likely to have present or near-term effects.

The issue warrants additional study.

There are opportunities for a public or private sector response
to the issue.

Upon further review, the following three issues were determined to
be inappropriate for study consideration: growth in time-sensitive delivery
requirements, growth in intermodal/containerized freight, and demands
for new information technologies. These issues are fundamentally different
from the others in that they reflect customer-driven market shifts internal
to the industry, rather than external forces that bear on motor carriers.
In other words, they represent a long-term shift in the nature of the
market rather more than a disruption to the industry. As such, there
is little opportunity for public or private response to these issues
other than to serve customer demands.

We presented a list of potential issues to seven motor carrier industry
experts (primarily trucking company executives) and asked them to rank
or discuss the issues in terms of importance. Industry experts were
asked to apply the five criteria listed above in making their assessment.
Interviewees were provided the opportunity to identify additional challenges
that were not on the list.

Table 3 shows the ranking of each of the issues provided by the interviewees
as well as an average rank and an overall rank. Two respondents declined
to numerically rank the potential issues, preferring instead to discuss
the potential effects of each issue and qualitatively assess its importance.
To integrate these responses with the numerical rankings, we assigned
issues with “high” importance a score of 3 and issues with
“low” importance a score of 10. Responses were fairly consistent,
with some notable exceptions. Rising insurance costs were ranked first
or second by all but one respondent. Four respondents ranked fuel price
volatility in the top three issues, although it ranked low with the
two largest carriers. All interviewees placed the hours of service rule
among the top six issues. Most interviewees gave urban congestion and
travel time reliability a rank of between fourth and seventh. There
was more variation in the assignment of rank to driver waiting and loading
times and security concerns.

Some of the differences in responses are undoubtedly caused by differences
in carrier type. For example, the ergonomics issue is more important
to LTL carriers, who
do more loading and unloading of vehicles on their premises. Rising
insurance costs may be more significant to smaller carriers, who are
unable to self-insure. Larger firms may be less concerned about fuel
price volatility because they are better able to use strategies that
provide some insulation against fluctuations.

We recognize that the motor carrier industry is diverse, and that this
interview process does not account for all the variation that exists
between carriers in terms of fleet size, operating range, geographic
location, cargo type, etc. However, the general consistency of the interview
responses and close correlation of these responses with issue coverage
in industry publications suggests that an extensive survey would result
in the same top issues.

The results of the screening interviews were presented to FHWA.
After discussions between FHWA
and the consultant team, it was decided that the study should focus
on the seven top ranking issues, plus delays at port terminals. Port
terminal delay did not rank high in importance in any of the screening
interviews, probably because the issue affects only a very narrow segment
of the motor carrier industry – port drayage. Most port draymen
are owner-operators, and their perspective is obviously not reflected
in interviews with firms. Delay for truckers accessing ports is generally
acknowledged to be getting worse, has potentially significant productivity
repercussions, and can potentially be addressed through public or private
responses. Thus, it was agreed that the issue of port delay meets the
criteria for inclusion in the study.

3.3 Issue Analysis

Assessment of the selected issues was conducted primarily through literature
review and interviews with motor carrier industry experts. The purpose
of the literature review was to gain a more comprehensive understanding
of each issue, its potential effects, and possible mitigating actions,
and also to identify the specific industry segments most affected by
the issue. Reviewed literature includes trade publications, research
studies, and congressional testimony.

Interviews were conducted with 14 motor carrier industry experts, primarily
trucking company executives and representatives of trucking industry
associations. Interviewees were promised anonymity; their characteristics
are shown in Table 4.

Table 4. Characteristics of Interviewees

Carrier Type

Freight Type

Operating Range

Power Units

Truckload

Dry van

Long-haul and Regional

45

Truckload

Dry van

Long-haul and Regional

160

Truckload

Flatbed

Long-haul and Regional

110

Truckload

Dry van (retail goods)

Regional

168

Truckload

Liquid and dry bulk

Regional

129

Truckload

Hazardous liquid bulk

Long-haul and Regional

60

Truckload

Dry van

Long-haul and Regional

1,000

Truckload

Dry van

Long-haul and Regional

2,670

Truckload

Dry van

Long-haul and Regional

225

Drayage, ports

Dry van, containers

Regional

61

Drayage, ports

Dry van and dry bulk

Regional

425

LTL

Dry van

National

4,500

LTL Trade Association

N/A

N/A

N/A

Owner-Op Trade Assn.

N/A

N/A

N/A

The following eight sections discuss each of the issues we assessed,
presented in the order of importance based on our issue screening interviews
(Table 3). We describe each issue, including its causes and effects
on the motor carrier industry. Then we discuss potential solutions that
could help to avoid or mitigate some of the negative effects on motor
carrier productivity and service quality. In addition to government
actions, we discuss private sector solutions, recognizing that there
may be a government role in supporting private sector solutions. Finally,
we identify some areas of needed additional research for each issue.

4 RISING INSURANCE COSTS

Insurance rates for the motor carrier industry have risen steeply over
the last several years. Most of the trucking companies we interviewed
identified this issue as the number one problem they currently face.

Motor carriers are required to have insurance policies for liability,
physical damage, and workers compensation. Firms also purchase umbrella
policies to obtain additional coverage above that provided by their
primary insurance. A recent survey by the American Trucking Associations
(ATA) confirmed
that insurance rates have increased substantially for both primary and
umbrella policies.12
Table 5 shows average percentage rate increases over the prior year
for 2000, 2001, and for before and after 9/11.13
The survey found that average primary insurance rates increased by 17
percent in 2000 and 32 percent in 2001. For umbrella policies, rates
rose by 33 percent in 2000 and 87 percent in 2001. The ATA
survey did not control for the level of coverage obtained, but rate
increases adjusted for coverage are likely to be higher, because many
carriers are reducing their coverage to control costs. Steep rate increases
continued in 2002. In our interviews with motor carriers, many reported
increases of 35 to 45 percent over the last two years.

Table 5. Insurance Rate Increase by Year and Insurance Type

Insurance
Type

2000

2001

2001
before 9/11

2001
after 9/11

Primary

17%

32%

30%

37%

Umbrella

33%

87%

74%

120%

4.1 Causes and Industry Effects

Insurance premiums are driven by two primary factors: performance of
insurance company investments, and loss experience and expected losses.
Insurance companies invest in bonds and stocks, so there is an inverse
relationship between investment returns and premium levels. As a firm’s
investment income rises, it can afford to give up some premium income
and, thus, can be more aggressive in pricing for market share. Insurance
companies can, and do, sustain losses on premiums when investment income
is high enough. Conversely, as investment income falls, firms must seek
higher income from premiums and some firms will sacrifice market share
in order to do this. We are now in a period of very low investment returns,
which has placed upward pressure on insurance premiums.

Regarding loss experience, trucking accident rates have been falling
but damage awards have been rising with a concomitant increase in pay-outs.
Further, many observers believe there has been a substantial September
11 effect, especially in the reinsurance market. Reinsurance is priced,
not on the experience in any particular industry, but on the market’s
overall perception of risk; the level of risk perceived in this market
has been significantly higher since the attacks of last year.

Rising insurance rates are a critical issue for the motor carrier industry
for several reasons. The conditions causing rates to rise do not appear
likely to be mitigated in the near future. Indeed, the low investment
returns, increased risk of terrorism, and increased damage awards could
cause further rate increases in the future. Additionally, competition
in the trucking industry makes it difficult for carriers to pass these
costs along to their customers in the form of higher prices. Insurance
rate increases reduce the profitability and productivity of the motor
carrier industry, and may force marginal companies out of business.
Rising insurance rates were one of the factors cited by Consolidated
Freightways as a cause of their recent bankruptcy.

Not everyone sees the rising insurance rates as a crisis, however.
An executive with the Owner Operator Independent Drivers’ Association
(OOIDA)
noted recently that owner-operators have long paid higher insurance
rates, and that rates for larger firms are only now catching up.14Others claim that insurance was underpriced through
much of the 1990s and is now reaching comparative levels in inflation-adjusted
terms.

4.2 Possible Solutions

Although insurance costs were identified as a very serious problem
by nearly all motor carriers interviewed, few were able to suggest public
or public-private solutions to the problem. Some carriers believe the
only way to address the problem is to reduce the incentive for lawsuits
through tort reform. Others see the problem as primarily market-driven,
and anticipate a market correction in the future. Historically, periods
of high rates have eventually attracted more providers to the market,
which increases competition and exerts downward pressure on rates.

Until rates come down, many carriers are taking steps to reduce their
insurance costs by, for example, reducing their level of coverage, employing
self-insurance, or focusing more of their resources on improving safety.
These strategies, and a possible government role, are discussed below.

Private sector solutions

Self-insurance is a strategy that larger carriers with sufficient resources
can employ. Some smaller carriers can also reduce coverage levels and
choose to bear the risk of claims. Recently, risk retention groups have
become popular. Groups of carriers with superior safety performance
establish these organizations as captive insurance companies to reduce
their insurance costs. One example is the American Trucking and Transportation
Insurance Company (ATTIC)
risk retention group, established initially by six carriers. Each member
must undergo a fleet safety standard inspection audit, achieving a minimum
score of 67 percent in each of 30 categories of fleet safety operation.
The inspection is conducted at six month intervals and fleets who don’t
maintain the required minimum score can face penalties and eventual
expulsion from the group.

Many firms have sought to reduce insurance rates by reducing the risk
of accidents. Firms that self-insure often have the most extensive safety
management programs to reduce risk. These firms frequently maintain
stringent hiring criteria, taking on only new drivers with good records,
good log audits, and good roadside inspection histories. Once hired,
driving records are reviewed every six months and problems are addressed
proactively. Other steps taken by carriers to reduce accident risk include:

Driver training programs that include retraining and refresher courses.

Human resources policies that provide drivers with regular schedules
and allow drivers to decide when they are too tired to drive.

Dispatchers who are paired regularly with the same drivers, who
are involved in the company safety program, and provided bonuses tied
to safety performance.

Public sector solutions

Insurance companies themselves are often integrally involved in promoting
new technologies and systems to improve safety. There may be a government
role in promoting the expansion of existing industry programs to share
information and voluntarily achieve higher safety standards. An example
is the 1-800-How’s My Driving program, operated by SafetyFirst.
Insurance companies make participation in this program a requirement
for obtaining coverage and provide the service at no cost to fleets.
Another example is DriveCam Video Systems partnership with National
Interstate Insurance Company (NIIC).
DriveCAM will market its driving feedback system to NIIC-insured
passenger transportation fleets, with NIIC
reimbursing 50 percent of the cost of installation for fleets. DriveCam’s
system records what drivers see and hear during unusual driving instances.15
If the safety benefits of adhering to higher standards can be documented,
trucking firms and insurance companies will have significant financial
incentives to achieve higher standards.

Tort reform is one policy action that could significantly affect insurance
rates. The U.S. tort system is more than twice as expensive as those
in other comparable industrialized countries, according to the Council
of Economic Advisors. For all civil cases, approximately 53 percent
of verdicts are decided in favor of the plaintiff. For those cases involving
trucks, 80 percent of the verdicts are for the plaintiffs.16
Currently the law allows for both compensatory damages for economic
losses, pain and suffering, and punitive damages designed to punish
the defendant. One proposed reform would allocate punitive damage awards
to a public fund that would remedy related problems, instead of giving
them to the plaintiffs and their lawyers, thereby reducing the incentives
for litigation. Federal legislation would be required to fully reform
the system, although some state reforms have already taken place. Under
Florida law, for example, 60 percent of punitive damage awards are given
to the state.

Other legal reforms, such as clarification of insurer exposure to Motor
Carrier Safety Form 90 (MCS-90)
requirements, could also reduce underwriting costs and hence improve
carrier rates. MCS-90
differs from a conventional vehicle insurance policy in several ways;
for example:

MCS-90 is
a Federal requirement for interstate carriers.

Under MCS-90,
the insurance company indemnifies (stands as a guarantor of the payment
of liability), and the insured reimburses.

MCS-90 does
not impose a duty on the insurance company to defend the insured.

The Federal Motor Carrier Act of 1980 requires interstate motor carriers
to provide evidence of financial responsibility. One way to achieve
this is to obtain a MCS-90
endorsement from an insurance company. An MCS-90
endorsement makes the insurance company a guarantor of the motor carrier’s
ability to pay liabilities it may incur, including bodily damage associated
with its drivers and vehicles, or property damage associated with pollution
losses (for example, from hazardous materials spills). The primary purpose
of requiring motor carriers to demonstrate financial responsibility
is to ensure that liabilities incurred in hazardous material spills,
for example, will be paid, even in the event of the bankruptcy of the
responsible motor carrier.

MCS-90 indemnification
is usually attached as a rider to other insurance coverage that motor
carriers are required to have, but is distinct and separate from such
coverage. Under MCS-90,
the insurance company evaluates the credit risk of the firms it covers.
It only becomes responsible for “hazard” risk when these
firms become bankrupt, or otherwise unable to pay. In addition to MCS-90
indemnification, motor carriers also purchase insurance coverage that
obligates the insurance company to reimburse them for liabilities and
costs associated with accidents or hazardous spills.

Recent judicial interpretations of the MCS-90
requirement have created legal uncertainty as to parties that this coverage
might apply to. For instance, the 9th and 10th circuit courts have ruled
that MCS-90
should cover the permissive users of trailers owned by a third party.17
In a recent case, a trucker hauling a trailer owned by a third party
collided with a bus. Although the third party’s insurance policy
did not cover any liabilities incurred during the permissive use of
the trailer, the court ruled that the insurance company was responsible
for the liabilities incurred pursuant to its MCS-90
indemnification. The uncertainty over the scope of coverage provided
by the MCS-90
indemnification has increased the risks of providing this coverage.
Industry advocates have argued that Congress should clarify the law
and eliminate coverage of permissive use of trailers, which would reduce
underwriting costs associated with issuing MCS-90
endorsements.18

4.3 Research Needs

Some industry proponents have argued that better data on insurance
rates are needed to help trucking firms assess surcharges to account
for unanticipated price increases. Data comparing rates across different
industry sectors, such as household goods, hazmat, or tank trucks would
enable trucking firms to determine average levels of insurance rate
inflation. This publicly available insurance rate index could then be
used in contracts to set surcharges.19

Research and analysis of the potential for industry voluntary programs
to improve safety could help to promote innovative private sector solutions.
These could include risk retention groups, enhanced private sector vehicle
technology, human resource policies, or other safety systems. Areas
where there are legal or market barriers or data needs could be identified.

Finally, there is a lack of published information on the safety performance
improvements of new vehicle technologies and management systems. Research
that more fully documents the effects of these developments on safety
could help to speed their adoption.

5 HOURS OF SERVICE RULE CHANGES

The Hours of Service (HOS)
regulations apply to motor carriers (operators of commercial motor vehicles,
or CMVs) and CMV
drivers, and regulate the number of hours that CMV
drivers may drive, and the number of hours that CMV
drivers may remain on duty before a period of rest is required. The
current regulations are divided into “daily” and “multi-day”
provisions, which can be expressed as follows:

Operators can cumulatively drive up to 10 hours or be on duty up
to 15 hours since the end of their last 8-consecutive-hour break.20

Operators can cumulatively drive or be on-duty up to 60 hours over
the last 6 consecutive 24-hour periods plus the current 24-hour period,
or 70 hours over the last 7 24-hour periods plus the current 24-hour
period.

Several categories of motor carriers and drivers are exempt from parts
of the HOS regulations or
from the entire HOS regulation
under the National Highway System Designation Act of 1995. There are
special exceptions for agricultural haulers, construction firms, and
utilities. Other exemptions include oilfield operations, the State of
Alaska driving and on-duty rules, the adverse driving and emergency
conditions exceptions, the retail store deliveries provision, and the
natural gas or oil well location sleeper berth exception.

A number of arguments have been made for changing the HOS
rule. The FMCSA
estimates that hundreds of fatalities and thousands of injuries occur
each year on U.S. roads because of fatigued CMV
drivers. The current HOS
regulations are not based on a 24-hour day work cycle, and do not allow
sufficient off-duty time for drivers to obtain eight hours of sleep.
The HOS regulations have
existed in their current form since 1962. Since that time significant
changes in highways, equipment, and transit time demands have occurred.
The high volume and speed of CMV
operations on Interstate highways and the higher traffic conditions
in local and regional environments require a high level of driver alertness.
Also, the results of scientific studies into fatigue causation, sleep,
circadian rhythms, night work, and other relevant matters were not available
when the current HOS regulations
were developed.

The DOT proposed
a new Hours of Service rule in 2000. That rule sought to eliminate the
distinction between on-duty and driving time and reduce the maximum
allowable time on-duty. It also required “black boxes” to
implement electronic record keeping and limit the ability of drivers
to forge their record of duty status. The proposed regulation created
five categories of drivers to which the rule had different applications.
Although an Act of Congress halted this rule making, the FMCSA
is currently planning a new rule-making in the near future. The new
rule is now under review at OMB.

5.1 Causes and Industry Effects

Changes to the HOS rule could have significant effects on motor carriers.
Until a new HOS rule is adopted, we can only generalize about these
potential effects. More restrictive rules could possibly make vehicle
and driver scheduling less flexible, and possibly raise the cost or
lower the quality of service that trucking firms can provide.

If the FMCSA
proposes to reduce the number of allowable on-duty or driving hours,
it could increase transit time for some shipments or increase the
cost of maintaining that time. This would increase the number of drivers
and equipment required to move existing freight volumes. The larger
driver workforce required would also entail increases in the cost
of driver recruitment.

Depending on the magnitude of these cost and service effects, potential
secondary effects of rule changes could include mode shifts and changes
to other modes of business operation. Increases in the price and transit
time of trucking service could drive firms to shift freight to other
modes, such as rail. Alternatively, firms could also choose to increase
inventories and reduce the frequency of shipment deliveries, effectively
substituting warehousing for trucking services.

Criteria for Motor Carrier Policy Decisions

Our discussion here focuses on the economic
effects on the motor carrier industry. It is important to note
that motor carrier policy decisions should be based on other criteria
as well, such as the following:

Explicit short-term financial burdens on the industry
may be counter-balanced by long-term improvements in safety.

Improvements in safety performance can lead to lower insurance
rates, reduced cargo damage, and better service reliability.

The effect of HOS rule
changes would vary across industry segments. Local trucking operations
rarely, if ever, reach the 10-hour driving limit, though some reach
the 15-hour on-duty limit in peak periods. LTL
line-haul operations rarely exceed 12 hours for on-duty shifts and driving
times are always within 10 hours. The regularized nature of LTL
and private carrier operations generally make it easier for these types
of firms to comply with the existing rule or adapt to changes. But the
spacing of these firms’ terminals and distribution facilities
are based on the 10-hour rule; any significant reduction from that limit
could have serious repercussions. The greatest effect of a changed rule
would fall on the regional and long-haul for-hire truckload firms. They
have the highest miles per driver and miles per tractor in the industry.
Much of their traffic is not routine, and there is always pressure,
especially on small operators, to drive a little longer or a little
faster to get one more load.

Rule changes that move drivers to a 24-hour clock could increase safety
and allowable driving hours at the same time. This is because the current
rule may have a tendency to cause drivers’ schedules to rotate
through different hours of the day over time. Provisions that allow
drivers to keep a regular schedule and reduce nighttime driving can
often allow drivers to get more sleep during their hours off.

In 2000, FMCSA
proposed weekend provisions that required drivers to obtain a block
of rest equivalent to a weekend after they reached their weekly hours
limit. In the previous rulemaking, there were concerns that these “weekend”
provisions could force motor carriers to operate during peak periods
of congestion. The enhanced accident risk of operation during congested
periods could offset accident risk reduction from the implementation
of expanded rest periods. Additionally, some have argued that demand
for more drivers would require the use of inexperienced drivers, further
increasing accident risk.21

5.2 Possible Solutions

Because changes to the HOS
rule have not been adopted, it is difficult to identify strategies that
could mitigate their effects. At this point, a number of organizations
have proposed modifications to the HOS
rule in the name of improving safety and/or improving motor carrier
flexibility. For instance, the National Sleep Foundation has suggested
that limits on nighttime driving instead of total driving hours would
have a greater effect on reducing accident risk. Others have argued
that any new rule should include a 24-hour reset provision that would
reset a driver’s weekly clock after 24 hours of rest. The Insurance
Institute for Highway Safety has argued that any rule changes should
include a 12-hour break after the exhaustion of the daily allowable
hours on-duty.

Other institutions have proposed that rule changes should include provisions
that increase the flexibility of the rule. The American Frozen Food
Institute (AFFI)
would like the HOS rule
to provide for unscheduled absences by drivers that affect their employers
and other drivers.22
To enable motor carriers to meet delivery schedules when unanticipated
absences occur, AFFI
has suggested that every CMV
driver be accorded a number of exemptions from the hours of service
restrictions on an annual basis. CMV
drivers could use those exemptions as they see fit throughout the year
to meet increased driving demands attributable to driver or equipment
shortages or other circumstances.

Changes to labor standards

Alternatives to the current regulatory system exist. Some policy-makers
have suggested that the Fair Labor Standards Act (FLSA)
should be applied to the motor carrier industry to require overtime
pay. This would provide economic incentives for firms to reduce the
hours their drivers work. Motor carriers are currently exempt from the
FLSA and are not
required to pay overtime to their employees, although many private carriers
and LTL companies do
pay overtime. Truckload firms pay by the mile; LTL
line-haul drivers are nominally paid by the mile, but they usually drive
the same distances every day, so the effect is not very different from
hourly pay.

Requiring motor carriers to conform to standard FLSA
provisions would provide a self-policing mechanism to reduce driver
work hours; it would also make trucking firms much more aggressive in
dealing with waiting and loading delays. In general, motor carriers
have argued that this would have disastrous effects on their business
operations.

Voluntary initiatives

Some policy makers have argued that voluntary programs may be a better
way to promote safety through hours of service. Many features of motor
carrier safety make it a desirable target for employing voluntary initiatives,
including the difficulty of enforcing existing rules, uncertainty over
the most effective remedies, and a diverse industry that makes it hard
to craft a single rule. Some private sector incentives already exist
to encourage industry to improve safety performance.

The industry has significant economic incentives to reduce fatigued
driving and its associated risks. Large trucking firms internalize a
substantial component of accident risk in their insurance premiums,
and many firms, not all of them large, employ a variety of practices,
such as safety bonuses, driver training, or in-vehicle monitors to improve
safety performance. Such monitors are in wide use by firms with 100
or more tractors.23
In many cases, the best solution will be defined by the usage and operating
patterns of each carrier’s fleet. For instance, the FMCSA
recently initiated a voluntary program that allows trucking firms to
use on-board recorders, rather than the traditional log book, to comply
with the hours of service regulation. Many private fleets have voluntarily
adopted this technology, although its penetration into other markets
has been limited.

A voluntary program that encourages the use of best practices and information
sharing on safety management practices could complement current regulatory
programs. Participation in such a program could be encouraged through
a labeling program that would allow carriers to certify their product
as adhering to a higher level of safety. Ideally, if program participants
could be shown to have significantly safer operations, participation
in the program might also be associated with lower insurance rates.

5.3 Research Needs

Additional research could help to inform the debate over alternatives
to HOS regulation and help
to identify potential mitigating responses.

The expansion of existing voluntary programs focused on motor carrier
safety should be studied. Opportunities to promote best practices,
facilitate the exchange of information on safety performance management,
and utilize safety labeling and branding programs should be examined
in more detail. For instance, are there opportunities for carriers
to collect and exchange information with insurance companies so those
companies employing the best safety management practices are rewarded?
Are there legal or market barriers that prevent carriers from collecting
and sharing data to assess the effectiveness of best practices? Could
FMCSA’s
existing data collection and safety rating system be improved to convey
more information to insurance companies or purchasers of trucking
services?

A survey of best practices for reducing fatigued driving could be
used to assess the effectiveness of private efforts to improve safety.
Research could explore the feasibility of a performance based safety
program that would exempt carriers from certain types of regulatory
scrutiny if they voluntarily implemented a set of best practices,
or achieved a specific level of safety performance.

Behavioral research and driver data analysis could be used to identify
drivers who are exceeding reasonable parameters including incidents
of hard braking, moving violations, complaints from the public, or
HOS violations. Research
that could help firms identify those drivers who would be likely to
violate the HOS rules
or other safety regulations could help firms better manage their driver
recruitment and retention strategies.

6 FUEL PRICE VARIABILITY

Many of the motor carriers we interviewed cited fuel price variability
as the second or third most important issue affecting their profitability.
Because fuel accounts for up to 20 percent of the operating cost of
a trucking company, a sudden increase in fuel prices can have a substantial
effect on a firm’s bottom line.

Unlike rising insurance prices and HOS
rule changes, fuel price volatility appears to be less of a concern
for larger carriers. While most of the smaller carriers interviewed
for this study identified the issue as critical to their ability to
stay in business, larger firms are generally better able to cope with
fuel prices change by using some of the strategies discussed in Section
6.2 below. One large carrier reports that fuel price fluctuation is
not a problem because it affects all their competitors equally, including
the railroads.

6.1 Causes and Industry Effects

Fuel price volatility is driven by a number of factors. Recent geopolitical
developments, such as instability in the Middle East and Venezuela,
have moved world oil prices higher. In the U.S., insufficient refinery
capacity and demand for boutique fuels24
has caused regional fluctuations in prices. Seasonal demand for heating
oil in the winter and gasoline in the summer also has an important effect
on fuel prices.

Public policy plays affects fuel price variability. Section 211 of
the Clean Air Act expresses the intent of Congress to promote a national
diesel fuel standard, but allows EPA
to grant waivers that permit states to mandate alternative fuel formulations
under extraordinary circumstances. California has received a waiver
that allows the state to require an alternative diesel formulation.
Providing this boutique diesel fuel has resulted in substantial diesel
price increases for California motor carriers. The average cost of California
diesel has been 27 cents higher than diesel in other states in the West,
and this price disparity has been as high as 40 cents. These price disparities
have existed even though the production cost of California diesel has
been estimated to be only 4 cents more per gallon.25

The motor carrier industry has resisted the introduction of boutique
diesel fuels because they reduce competition among refineries, resulting
in price increases. Because not all refineries will produce a diesel
fuel that is required for a particular state, boutique fuels limit the
number of competitors and increase the pricing power of refineries.
Additionally, product shortages cannot be remedied by importing diesel
from other regions of the country. Boutique fuels are thus susceptible
to price spikes caused by an “inflexible” market. Limiting
the proliferation of boutique diesel fuels could reduce both diesel
prices and their variability over the long run. This assumes that states
and regions can find other ways to reduce emission levels.

Industry advocates also argue that stringent environmental regulations
have inhibited the development of new refinery capacity. No new refinery
has been built in the U.S. in over two decades, and the number of operating
refineries has been cut in half during that period.26
Declining domestic oil production and reduced domestic refinery capacity
has been paired with increasing demand for diesel. High capacity utilization
at existing U.S. refineries has limited the ability of the market to
adapt to unexpected increases in demand.

With average operating profit margins of five percent, the industry
has little ability to absorb changes in fuel costs. While predictable
and long-term price increases can be passed onto customers, where firms
face unanticipated price increases and have long-term contract obligations
to deliver freight, they may be unable to adjust their prices quickly
enough to recapture these costs. It is not surprising that trucking
firm bankruptcies are correlated with fuel price increases, as illustrated
in Figure 2.

Figure 2

6.2 Possible Solutions

There are a number of public and private sector strategies to mitigate
variability in fuel prices.

Private sector solutions

Motor carriers can employ swaps and options to hedge against changes
in fuel price. An option is the right to purchase an asset at a specified
price and date in the future. A swap is similar in that it guarantees
the purchase price of an asset in the future. A swap sets an average
price at which a company might purchase diesel fuel. If the firm’s
actual purchase price exceeds this, the bank (or other institution)
will make up the difference. If the average purchase price falls below
this level, the firm is obligated to pay the difference to the bank.
Overall, the purpose of these arrangements is to allow a firm to plan
their pricing and reduce the risk that they will be locked into unprofitable
agreements to deliver service. While options and swaps can help large
firms reduce the risk of fuel price increases, small firms do not typically
purchase sufficient volumes of fuel to employ them.

Another potential way for firms to reduce their fuel cost and their
exposure to fuel price variability is to purchase fuel on the spot market
or at the wholesale level and maintain their own distribution network.
Purchasing on the spot market requires very large purchases, often over
a million gallons of fuel. Purchase of fuel at the wholesale level is
a more feasible option for smaller companies, requiring purchases as
small as 3,000 gallons. Purchasing fuel in bulk quantities allows firms
to avoid retail markup and local fluctuations in prices, but makes them
responsible for transporting and distributing fuel. Environmental risks
and liabilities associated with the storage and distribution of fuel
can be significant. Many firms have found that making their in-house
distribution network pay for itself is a management challenge.

Some firms have chosen to negotiate cost plus contracts with a large
fuel retailer. Firms purchasing significant volumes of fuel can often
obtain discounts, although these agreements still leave trucking firms
vulnerable to fluctuations in the price of oil in the world market.

Public sector solutions

Fuel price variability is viewed by many as a product of market forces,
and thus inappropriate for government intervention. However, several
bills have been introduced recently in Congress that attempt to help
mitigate the effects of fuel price changes. The Motor Carrier Fuel Cost
Equity Act of 2002 (S. 1914) and its companion bill in the House, HR.
2161, would require motor carriers, freight forwarders, and brokers
to impose a fuel surcharge on customers when the national diesel price
exceeds a specific benchmark price. The Senate bill uses a benchmark
price of $1.10 a gallon, while the House bill uses a floating benchmark
based on the price in the previous 12 months. The law also prohibits
reducing other payments to avoid passing through costs. The basic premise
behind these proposed bills is that large carriers often include fuel
surcharge provisions in their contracts, but small trucking companies
may not have the bargaining power or clout to negotiate these clauses.

The Senate bill requires motor carriers to pay the surcharge to owner
operators only if they can collect it from the shipper. The House Bill
would require surcharge payments to owner operators in all cases. Some
legal experts have argued that the law could open up a new arena for
class action lawsuits against motor carriers.

There are, of course, some major potential downsides to the re-entry
of government in setting truck rates, including hindering of competition.
For example, mandatory fuel price surcharges could also prevent small
carriers from making price concessions in hopes of capturing market
share. The Senate bill is supported by the Owner Operator Independent
Drivers Association and the Truckload Carriers Association. The Distribution
and LTL Carriers Association
has opposed government intervention into the market, arguing that their
members have already worked out satisfactory contractual arrangements.

6.3 Research Needs

Research is needed to better understand how fuel price volatility affects
the industry. While trucking firm bankruptcies are correlated with fuel
price volatility, numerous other factors contribute to the failure of
trucking firms. Indeed, fuel price increases are often correlated with
other factors that have a more significant effect on the market for
trucking services, such as levels of growth in manufacturing and other
transportation intensive industries. More detailed study of the effect
of fuel price volatility on business failures could disaggregate these
other effects to obtain a more accurate measure of the cost to the motor
carrier industry.

Additional research on the effect of boutique fuels on price volatility
could document industry costs in more detail and contribute to the debate
over future changes to fuel control standards. Such research could examine
the dynamics of the diesel fuel market, and shed light on factors that
could enhance the competitiveness of this market. Further analysis of
the legal and market implications of the proposed fuel surcharge legislation
is also warranted if the bill moves forward. The history of rate regulation
in the trucking industry suggests that regulation of industry pricing
is likely to have a number of unintended consequences.

7 URBAN CONGESTION AND TRAVEL TIME RELIABILITY

Congestion in America’s cities is an endemic problem. While congestion
can be a sign of healthy economic activity and the full use of roadway
infrastructure, for the motor carrier industry congestion leads to increased
travel times and, worse, reduced reliability of travel times. Congestion
also increases vehicle operating costs (e.g., lower fuel economy, more
frequent engine maintenance, etc.)

The nature of the urban congestion problem is well known. According
to the Texas Transportation Institute’s Urban Mobility Report,
the delay per peak-period road traveler for the 75 largest U.S. metropolitan
areas has nearly quadrupled in the last 20 years, from an average of
16 hours in 1982 to 62 hours in 2000.

A related issue, and one that is perhaps more important for motor carriers,
is the deterioration in travel time reliability in many urban areas.
Freight shippers have become used to receiving a high level of highway-freight
service, and can demand and receive schedule reliability such that deliveries
consistently arrive in time windows of 15 or fewer minutes, even on
runs of ten hours or longer. Whole systems of inventory control and
supply-chain management have been built around the expectation that
this kind of reliability is a permanent feature of freight service.
As a consequence, carriers can be crippled by unexpected delays. One
recent study indicated that on average, carriers value savings in transit
time at between $144 and $192 per hour, while savings in non-scheduled
delay are valued at $371 per hour.27
In other words, the time late (unexpected delay) was valued at roughly
twice the rate of transit time. As congestion grows and a larger portion
of roadway capacity is being used, highways are increasingly susceptible
to this unexpected delay, with potentially serious implications for
motor carriers.

In our interviews with motor carriers, most identified urban congestion
as a problem that affects their productivity and service quality, but
none put it at the top of the list. Clearly there is an expectation
of some congestion in urban areas, and carriers adjust their operations
to cope with it. What troubles some in the industry is the prospect
that congestion will get worse, and thereby upset their logistical structure.
For example, terminal locations and delivery schedules may be set up
under the assumption of 500 miles of travel in a day, and large reductions
in travel speed would force a costly change to this structure.

7.1 Causes and Industry Effects

The causes of urban congestion and poor reliability are well known
and need not be reiterated here. The effect on motor carriers is an
increase in operating costs. In response to congestion, carriers may
(if possible) select alternative routes, shift to off-peak periods,
or schedule trips with a greater travel time buffer. As traffic peak
periods have expanded to include a larger fraction of the day, however,
options for avoiding congestion have become more limited. When it can’t
be avoided, carriers may face costly delays in traffic, missed pick-up
and delivery windows, and possibly heavy monetary penalties.

A recent survey of for-hire and private motor carriers operating in
California found that 19 percent of fleets often re-routed drivers in
transit to avoid congestion and 27 percent of fleets often missed schedules
often or very often as a result of congestion, as shown in Table 6.28
The survey found that half of fleets were often required by their customer’s
delivery windows to work during congested periods.

Table 6. Regularity of Congestion Related Problems

Congestion Related
Problem

Never

Sometimes

Often
or Very Often

How often are schedules missed because of congestion?

11%

62%

27%

How often are drivers re-routed because of road
congestion?

11%

69%

19%

How often do customer time-windows force your
drivers to work in congestion?

12%

38%

50%

7.2 Possible Solutions

Elimination of urban congestion is virtually impossible, but a variety
of strategies are available to reduce its extent or at least make it
more tolerable. These strategies include: investment in more highway
capacity; measures such as road pricing to reduce demand for highway
travel or divert it from peak periods; and measures for more efficient
use of the existing physical structure. While the motor-carrier industry
would like to see more highway investment, some of their problem, especially
reliability, may be best approached with improved information systems
giving advance warning and improved incident management procedures to
reduce the effect of incidents.

Several of the motor carriers we interviewed stressed the importance
of avoiding peak periods whenever possible. Congestion is most acutely
felt by the downstream end of the supply chain – shipments from
distribution centers to retail stores, which are by inevitably located
in populous and often congested areas. Carriers have advocated shifting
deliveries to night or early morning hours, but this has been resisted
by many retailers (and by some municipalities). Shifting driving to
off-peak hours could also create greater accident risk if drivers operate
vehicles during hours when their natural sleep cycle causes them to
be less alert.

Real-time traffic information systems are available in many large urban
areas, often via the Internet. Truck drivers and dispatchers can use
these systems to help minimize congestion delay. As one regional carrier
told us: “It is not difficult to calculate driving time in a pure
traffic environment; the problem arises in attempting to calculate or
allow for the unknown.” FHWA
is currently supporting efforts to better measure, report, and utilize
information on travel time variance (reliability). At the moment, very
few MPOs
and state DOTs
collect and report travel time reliability. One FHWA
effort is attempting to develop a consensus around a single measure
of reliability (the so-called “buffer index”), promote its
reporting by public agencies, and promote its use by private and commercial
vehicle operators to better plan urban travel.

The larger motor carriers make extensive use of advanced technologies
for vehicle monitoring, communication, and route planning. Many trucks,
particularly those in larger fleets, are now installed with sophisticated
computerized tracking devices, sometimes using GPS.
These devices can monitor driving patterns and engine performance, and
transmit the information back to the fleet headquarters. They can also
be used to provide drivers with continuous in-vehicle road condition
and optimal route information. Centralized dispatchers use route planning
software to provide drivers with detailed route instructions that seek
to minimize travel time and fuel use. By providing drivers with route
optimization tools based not only on distance but also on reliability,
these technologies can help to mitigate the effects of incident delay.

Investment in new highway capacity is another approach to addressing
urban congestion, although obviously one that is constrained by available
funds. There has been recent interest in truck-only lanes or truck freeways.
Southern California is considering the addition of truck-only lanes
to Highway 60, which connects Los Angeles with the freight-intensive
areas of San Bernardino County. Tolls on trucks using the facility would
be used to finance approximately one-third of the estimated $4.3 billion
cost. Similar projects have been proposed in Virginia on I-81 and along
a NAFTA
highway from Toronto to Laredo.29
Motor carrier industry groups have traditionally been opposed to tolled
facilities, which they consider “double-taxation”. Overnite
Transportation Company estimates that the proposed I-81 toll of 20 cents
per mile would cost them $1 million per year.30ATA did offer
qualified support for a plan by the Reason Public Policy Institute to
build truck freeways in existing Interstate medians, provided that use
of the lanes is voluntary and that fuel tax rebates are given to carriers
to offset additional tolls.31

7.3 Additional Research

Although there have been isolated studies of the issue, the effect
of recurrent and non-recurrent traffic delay on motor carriers is not
well understood. Research is needed to better quantify the cost of delay
for commercial vehicles, as this information can better inform metropolitan
transportation planning decisions. With major capacity additions unlikely
in many cities, research is also needed to better understand how motor
carriers can maximize use of existing capacity, and how transportation
agencies can help in this regard.

8 NEW EMISSIONS AND FUEL STANDARDS

The U.S. EPA
has approved a series of new standards for air pollution emissions from
heavy-duty engines as well as related standards for the sulfur content
of diesel fuel. There are concerns that these standards could potentially
cause disruptions to the motor carrier industry by affecting service
quality and profitability.

In October 1997, EPA
established standards for heavy-duty engine NOx
emissions (2.5 g/bhp-hr) to take effect in 2004. Three years later in
January 2001, EPA
ordered further emissions reductions for heavy-duty engines to be phased
in starting in 2007 (0.2 g/bhp-hr NOx
and 0.01 g/bhp-hr PM).
At that time, EPA
also established much lower standards for the sulfur content of on-road
diesel fuel (15 ppm, 95% lower than the current standard of 500 ppm)
to begin in late 2006. The fuel standard is critical to emission reduction
efforts because sulfur can contribute to particulate matter emissions
and also “poison” some emission reduction devices like catalysts.

Soon after the 2004 standards were established, EPA
sued most heavy-duty engine makers, charging that they had programmed
engines to reduce emissions during certification tests but emit at a
higher rate during on-road driving. Seven engine makers (Caterpillar,
Cummins, Detroit Diesel, International, Mack, Renault, and Volvo) agreed
to settle the lawsuit and accepted a consent decree. In addition to
fines, the engine makers agreed to accelerate compliance with the 2004
NOx standards to October
1, 2002. Many in the motor carrier industry are concerned that engines
meeting this new emissions standard are unproven and may saddle them
with higher maintenance costs and lower fuel economy.

Industry leaders we interviewed were divided on the importance of this
issue — more so than any other issue. Many ranked this issue as
among the most serious facing their company due to the anticipated higher
purchase price and maintenance costs, lower fuel economy, and uncertain
reliability of the newly certified engines. The timing of our interviews,
just after the October 1, 2002 deadline, probably contributed to a general
anxiety over the issue. Several other carriers did not see this issue
as much of a problem, primarily because it affects all carriers equally.
The president of one large carrier said there is a spreading perception
that the industry's fears about fuel costs and maintenance problems
with the new engine requirements were exaggerated. Most carriers are
not yet thinking about the 2007 emissions standards, which potentially
present a much greater challenge to the engine makers.

8.1 Causes and Industry Effects

There is widespread concern that achieving the new emissions standards
comes at the cost of some diminished engine performance. Most engine
makers will meet the 2.5 g/bhp-hr NOx
standard by adding exhaust gas recirculation (EGR),
a technique that directs some of the oxygen-depleted exhaust gases back
into the engine. While reducing NOx
formation, EGR
can also potentially cause:

Lower fuel economy

Lower horsepower

Higher engine temperatures (requiring longer fan operation)

Possible need for more frequent engine maintenance

Fuel economy is a major concern to motor carriers, given that fuel
can make up 20 percent of operating costs.32
It is too soon to make an assessment of the new NOx
standards on fuel economy. Engine makers claim that they have met the
standard without compromising fuel economy. EPA’s
regulatory impact analysis for the standard estimated that the fuel
economy penalty associated with EGR
will be offset by improvements to fuel injection and other engine enhancements.33
Most motor carriers are convinced that they will see lower fuel economy
under the new standard.

Meeting the emissions standards with any technological approach increases
engine manufacturing costs, and may result in higher truck purchase
costs for motor carriers. EPA’s
regulatory impact analysis estimated that meeting the 2004 standards
would increase manufacturing costs by an average of $803 per engine.34
It is not yet clear what the actual cost increases have been, or how
much of this cost will get passed on to final purchasers (carriers).

Because of these side effects, particularly uncertainty over engine
reliability, motor carriers have been reluctant to purchase the newly
certified engines. Instead, fleets have been purchasing larger numbers
of older engines (used engines and new engines manufactured before 10/1/02),
and also holding on to their current trucks longer than they normally
do. Many of the carriers we interviewed have taken this approach, sometime
buying a small number of the newly certified engines to assess their
performance. Manufacturers have experienced a drop in new engines sales
as a result of these purchasing patterns, a problem compounded by lower
sales overall due to the sluggish US economy. Several engine makers
have announced layoffs, including Caterpillar and Detroit Diesel.

The effects of the 2002/2004 emission standards on the motor carrier
industry are uncertain, but will almost certainly not be as serious
as the predictions of carriers in 2002. Before the October 1, 2002 deadline,
the motor carrier industry and some engine makers were lobbying hard
for a delay in the standards, and thus had every reason to predict disastrous
effects. For example, ATA
warned in June 2002 that the nation could face “massive truck
manufacturing and fleet management disruptions.” That has clearly
not happened. Because of the price premium on the new engines and possibly
lower fuel economy, the emissions standards will increase costs at least
slightly for fleets, and may increase bankruptcies among marginal carriers.
This effect will probably be small relative to other market forces that
affect carrier costs, including fuel price swings and insurance costs.
If the new engines prove to have long-term reliability problems, this
could lead to more significant losses across the entire industry.

The 2007 standards potentially pose a far greater challenge to the
motor carrier industry. Allowable NOx
and PM emissions in 2007
are just one-tenth the 2002/2004 levels. The technologies to achieve
these reductions are unproven, and engine makers have yet to decide
which ones they will use. In order to have finished models ready for
testing by 2006, manufacturers have just three years to complete their
research and develop prototypes. Engines meeting the 2007 standards
are likely to be more expensive (EPA
estimates a cost increase of $1,200 to $1,900 per truck), and may be
trigger another round of concerns about reliability and performance.

The 2006 fuel standards are expected to raise the cost of producing
and distributing diesel fuel by 4.5 to 5 cents per gallon.35
A 5 cent increase in fuel prices would add over $800 in annual operating
costs per truck for a typical long-haul carrier. However, unlike the
fuel price volatility issue, this price increase will be expected and
can be matched by a similar increase in freight rates.

8.2 Possible Solutions

The private sector strategies to cope with this issue were mentioned
above – forestall the purchase of engines manufactured after October
1, 2002 and instead purchase older tractors or maintain the existing
fleet longer. Eventually, of course, all fleets will need to purchase
the new lower emitting engines, but any maintenance problems with the
engines are likely to be resolved over time. Given that the effects
of this issue on the motor carrier industry are uncertain and may be
minimal, and that the issue affects all carriers equally, we have not
identified public sector strategies to mitigate negative effects.

8.3 Research Needs

At the present time, no additional research on the economic effects
of engine and fuel standards appears necessary. When the diesel fuel
standards take effect in 2006, monitoring and research will be needed
to ensure that fuel supply and price changes do not have serious repercussions
on the motor carrier industry.

9 DRIVER WAITING AND LOADING TIMES

Long driver wait times impose substantial costs on the trucking industry
and its drivers. Many of the motor carriers we interviewed for this
study identified this as a critical issue affecting their productivity
and quality of service. Long wait times are primarily a problem for
truckload for-hire carriers and private fleets delivering or picking
up at customer facilities.

The 1999 Dry Van Drivers Survey found that drivers spent an
average of over three hours at each trip end waiting, loading, or unloading.36
Table 7 shows these survey findings for two classes of pick-up and delivery
operations. Drop-and-hook operations that require carriers to merely
attach or detach a loaded trailer on a shipper’s premises require
less time than standard pick-up and delivery operations. Nonetheless,
both types of pick-up and delivery entail substantial wait times.37
If handled properly, drop-and-hook operation can lead to much lower
wait times than found in the Dry Van Drivers Survey. For example,
one major LTL carrier
reported to us that it has a policy of fifteen minutes for a drop and
fifteen minutes for a hook.

Table 7. Driver Waiting and Loading Times, in Hours

Activity

Drop
& Hook

Excluding
Drop & Hook

All

Waiting to Load

1.8

2.3

2.3

Loading

1.0

1.1

1.1

Waiting to Unload

1.7

2.0

2.4

Unloading

1.3

1.2

1.2

9.1 Causes and Industry Effects

The Dry Van Drivers Survey found significant variation in
waiting and loading times across industry sectors. Our industry interviews
confirm that the problem is worst in the grocery sector. Grocery companies
tend to make drivers wait more and do a substantial amount of unloading.
Delays at groceries are compounded by a number of factors, including
the high volume and velocity of freight moved, the high number of Stock
Keeping Units (SKUs)
within shipments, multiple SKUs
on a pallet, special handling requirements, space and location issues
at receiving facilities, and the perishable nature of some of the goods.

While a portion of driver wait time may be attributable to carriers
building buffers into their schedules to ensure on-time pickup and delivery,
the biggest contributing factor is that shippers and receivers do not
directly bear the cost of keeping driver and equipment waiting. Shippers
are typically charged by the mile and do not incur any immediate costs
for making drivers wait. Drivers and carriers bear the costs of waiting
in lost wages and revenue. Carriers may recoup some of these costs by
charging higher rates. The fact that private carriers delivering to
owned facilities rarely have to wait tells us that the cost of long
wait times in for-hire carriage are not being internalized in the rate
structure. That is, when a single entity bears both the cost and benefit
of waiting, it rarely chooses to make its drivers wait. If shippers
had to bear the cost of waiting, they would behave differently.

While loading and unloading is often done by the truck driver or by
the shipper/receiver, independent employees sometimes perform these
activities. One carrier noted the related problem of being forced to
use these individuals (known as “lumpers”) at a high cost,
or else waiting one to two days to load or unload. This problem is reportedly
most serious in the refrigerated foods business.

For the most part, lengthy driving waiting and loading times affect
for-hire truckload carriers only; LTL
and private carriers operate their own loading and unloading facilities
and thus have an incentive to do so efficiently. The cost of long driver
wait times to the truckload industry is substantial. It is estimated
that reducing loading, unloading, and wait time by ten percent would
allow motor carriers to earn an additional $156 million in profits.38
These gains in profit would be achieved by increasing industry productivity.
Output could be expanded without adding to the fixed pool of drivers
and stock of vehicles already possessed by industry. Another cost of
driver waiting, which is harder to quantify, is the effect it has on
driver satisfaction and driver turnover. For instance, one study found
that driver wait times are the third most important factor determining
driver job satisfaction.39
Reducing wait times could help to reduce driver turnover and its associated
costs.

Changes in the hours of service rule could make the problem of long
driver wait times more critical (see Section 5). If the allowable time
on-duty is reduced, wait times at customer facilities will have a greater
effect on motor carrier productivity, as hours lost waiting may further
reduce the amount of allowable driving time. Long and unpredictable
wait times at customer facilities are currently an important contributing
factor to violations of the existing hours of service rule. After experiencing
extended delays to pick up or drop off cargo, many truckers are faced
with the choice of running behind schedule, or violating the speed limit
or the hours of service rule to make up for lost time.

9.2 Possible Solutions

A variety of strategies have the potential to reduce the burden of
wait times on motor carriers. Through our interviews with trucking industry
executives, it is clear that some motor carriers have been innovative
and aggressive in addressing this issue. One major TL
firm insists that most of its customers do loading and unloading work
and refuses to serve customers with long wait times. They are able to
do this because they have a good reputation for reliability and have
low rates. We are aware that other TL
companies are also putting pressure on shippers to reduce wait and load
times, possible using the carrot of low rates. Another large carrier
stresses the importance of developing a positive relationship with customers,
and clearly articulating service standards and the cost of poor performance
at the start of a carrier/shipper relationship.

While some of the strategies involve changes to operating practices
or shipper/carrier relationships, it is important to keep in mind that
this problem is at its core a market problem. It will not be fully resolved
until shippers bear the cost of the driver waiting that they cause.

Changes to trucking contracts

A recent study by Mercer Management reviewed a sample of truck transportation
contracts, and they found that most contracts did not materially address
loading, unloading, or wait times.40
A number of reasons were identified for this. First, most boilerplate
contracts only include what are considered to be critical provisions,
such as rates, insurance requirements, and indemnification obligations.
Infrequent or low volume customers were particularly likely to have
contracts that did not address loading, unloading, or wait times. Those
firms that addressed these issues in their contracts were typically
large firms that moved high value freight. Note that even when contracts
do address detention charges, these provisions may not be enforced because
of competitive pressures.

The Mercer study recommends that carriers and shippers address the
responsibility for wait times in their contracts. Contracts should specify
an obligation for customers to schedule realistic pickup and delivery
times. Procedures for the communication of schedule changes should also
be established upfront. Detention charges can provide shippers with
incentives to ensure that wait times do not exceed a specified duration.
One problem with detention charges is that a shipper may be required
to pay detention charges for delays on the receiving end. In many cases
a shipper will have little control over the operational practices and
wait times imposed at the receivers loading dock. Because of this, it
is important that contracts specify the exact conditions under which
detention charges will be paid, how much free time will be allowed for
pick-up and delivery, and what documentation will be required by the
customer to pay these charges.

The motor carrier industry has long advocated a model contract to govern
transactions between shippers and carriers, and many hope that this
model could address the issue of detention times at loading docks. The
Department of Justice ruled in November 2002 that carriers could collaborate
on developing a model contract without violating antitrust laws, as
long as rates and other charges on the contract are left blank.41
However, shippers and their associations have rejected the notion that
elements like wait penalties and fuel surcharges could be included in
the model contract, noting that shipper-carrier agreements are too diverse
for standard treatment of these charges.

Changes to loading dock practices

Studies have suggested that improving the operation of shipper loading
docks is not an insurmountable task. The National Refrigerated Driver
Survey found that driver satisfaction with shippers and receivers
varied significantly between loading docks of the same firm. For instance,
the loading dock practices at one Wal-Mart received a rating of most
fair while the practices of another dock was ranked least fair. These
variations suggest that there is nothing inherent in the nature of many
businesses, or their established company policies, that precludes better
loading dock management.42

One barrier to implementing more efficient scheduling at loading docks
is that delays at one customer facility can cause late arrival at another
facility. The need to coordinate operating practices across a large
number of entities makes it difficult for any single firm to fully address
the problem by itself. Tighter integration of carrier and shipper operations
through the use of supply chain management software can offer a partial
solution. Better communication between carrier and shipper organizations
can increase the efficiency of both operations, allowing shippers to
more easily track and schedule shipments, and provide carriers with
better managed process for the loading and unloading of cargo.

Many of the possible solutions are not technically complex. For instance,
changing loading dock procedures to allow for 24-hour delivery or providing
a mechanism for the delivery of freight that arrives early could reduce
truck wait times. Some receivers give carriers keys to get into their
yards so a driver can drop a trailer, pick up an empty, and be on his
way. One profitable carrier reports some success in getting their customers
to do loading and unloading, or at least getting its customers to palletize
loads. Under some circumstances, this firm offer shippers $75 per load
to handle loading or palletizing loads, an expense that may not be an
option for a less-profitable carrier.

Changes to labor standards

Changes in the way the Fair Labor Standards Act is applied could potentially
be effective. If carriers had to pay drivers on the basis of hours actually
worked, they would have to charge shippers accordingly. If shippers
incurred a monetary cost for making drivers wait, they would have an
incentive to change their behavior. Not only would shippers turn trucks
around faster, they would have their own people do the loading and unloading,
because drivers earn higher wages than do warehousemen. (Note that carriers
might not think this the best solution.)

Improving travel time reliability

Reducing non-recurrent congestion could also help to limit the cost
of waiting. Because of uncertainty and variability in road transit time,
a substantial fraction of truck waiting time is caused by the need to
build sufficient buffer time into schedules to ensure on-time delivery.
Increasing transit time reliability would reduce the amount of time
vehicles spent waiting. A similar result could be achieved by better
use of real-time traffic monitoring and reporting technologies that
allow carriers to anticipate delays. FHWA
is currently developing a public information campaign to promote the
development and reporting of a single measure of travel time reliability
by MPOs
and state DOTs.
They intend to promote the use of this measure by the trucking and logistics
industry. (See Section 7.2)

Industry voluntary programs

Some have argued that cooperative industry efforts or voluntary programs
could help reduce wait times.43
The Truckload Carriers Association, in cooperation with the National
Industrial Transportation League, has made preliminary steps in this
direction. Recently they updated the “Voluntary Guide to Good
Business Relations for Shippers, Receivers, Carriers and Drivers”.
The guide is not meant to provide standards or create legal rights,
but merely to identify best practices that all parties agree are in
their best interests to adhere to. The guide recommends that shippers
and receivers take responsibility for loading and unloading and provide
for prompt loading/unloading of trucks that arrive within the scheduled
time. Additionally, the guide suggests that shippers not refuse to reschedule
appointments if circumstances change and that they cooperate in loading/unloading
trucks that arrive early, late, or without an appointment.44

One approach to implementing a voluntary program is to develop an industry
standard addressing loading and unloading practices in detail. This
could be implemented as an ISO
standard, with firms voluntarily adopting a set of business processes
to streamline operations.

Related environmental and energy efficiency initiatives

Industry efforts to reduce truck wait times might also dovetail with
public sector programs to reduce truck idling. For instance, EPA’s
Office of Transportation and Air Quality is currently developing a voluntary
program for freight called the Smartway Transport Initiative. The program
will create a set of best practices that save fuel and reduce greenhouse
gas emissions. Firms adopting these best practices can use EPA’s
Smartway label to brand their products as beneficial to the environmental.
One of the practices being considered for the program is loading and
receiving policies that reduce vehicle wait time and idling.

Some states make tax credits available for energy efficient or green
business practices. For instance, Oregon provides energy tax credits
for businesses to purchase auxiliary power units that help reduce truck
idling. Loading dock management practices that reduce idling, energy
use, and pollution could be encouraged with similar types of incentives.

9.3 Research Needs

Below are some areas of research that could contribute to efforts to
reduce vehicle wait times.

Compile an inventory of public sector programs that could be used
to promote the adoption of loading dock best practices. Such a project
could examine successful state programs to identify possible models
for federal adoption. A related effort would be to explore the possibility
of Clean Air Act credit for promoting the use of practices that reduce
vehicle waiting and associated idling.

Examine the state of the practice in loading dock management and
scheduling. Determine the feasibility of implementing an International
Standards Organization (ISO)
standard for these processes. Among other things, ISO
standards typically define a set of processes to measure and improve
performance for specific business practices. The industry segments
that would most benefit from such a standard and potential market
barriers to adoption could be identified.

Quantify the safety benefits of more efficient scheduling of pickups
and deliveries. This research could explore the possibility that better
loading dock management would reduce the incidence of speeding and
HOS violations.

Examine the feasibility of unbundling the cost of vehicle wait times
in transportation contracts. Identify legal and market barriers to
the adoption of contracts that value time.

Quantify the effects of non-recurrent congestion on vehicle wait
times. This could provide policy makers with a measure of the additional
economic and environmental benefits that could be achieved through
improved travel time reliability.

10 SECURITY CONCERNS

The events of September 11, 2001 elevated transportation security to
an issue of critical importance. Industry experts and policymakers have
highlighted the vulnerability of the nation’s freight system to
terrorist attack and proposed a variety of responses. Concerns have
focused in particular on border crossings, freight moving through seaports,
hazardous materials transport, potential contamination of food shipments,
and the potential use of a truck trailer to deliver a weapon.

10.1 Causes and Industry Effects

Changes to date

The heightened focus on security since 9/11 has changed the operating
environment for motor carriers. Long-haul truckers have reported difficulty
locating parking at night because informal roadside truck parking areas
are now off-limits. Some have responded by stopping earlier for the
night. Drivers also report being more vigilant, taking extra precautions
in fear that their load could be used as a terrorist weapon. The president
of Roadway Express noted that the LTL
carrier was feeling the cost effects of 9/11 in a variety
of ways. For example, Delaware River bridge authorities quadrupled the
cost of truck tolls due to their higher insurance costs. Truck inspections,
and the associated time lost, had increased 150 percent. And the carrier
was spending more on terminal security by installing improved fences,
gates, and monitoring cameras.

However, our interviews with trucking industry leaders suggest that,
at the moment, motor carriers are not generally feeling adverse productivity
effects as a result of heightened security. Most carriers we interviewed
ranked this issue fairly low in importance. One large truckload carrier
welcomes the increased emphasis on security, noting that the trucking
business (and the truckload sector in particular) had been overly lax
about security. An executive at another large carrier of high-value
cargo echoed this sentiment, noting that his company had implemented
security procedures to prevent hijacking well before 9/11.

Another carrier pointed out that many of the security practices being
required or proposed are things carriers should be doing anyway. As
an example, he noted there is now a stronger emphasis on the requirement
that the seal on the truck be unbroken at time of delivery. This has
long been a principle in the business, and a provision to this effect
is often in bills of lading or other documents. But drivers are in the
habit of breaking the seal before backing up to the receiving dock.
This now results in some loads being sent back to origin, and it is
not easy to get drivers to change their habits.

Industry experts have speculated on some possible longer-term effects
of 9/11 on the trucking industry:

Expedited trucking industry could benefit from increased scrutiny
of air cargo shipments. If security checking flows air carrier freight
shipments, some shippers may switch to less expensive trucking options
if they can offer comparable delivery times and reliability.

Because of the threat of terrorism, increased trucking costs, and
rising trucking bankruptcies, more shippers may turn to private trucking
fleets to distribute their goods. This might reverse the long-term
market share growth by for-hire carriers.

New security procedures and regulations for trucking are expected,
and may result in more significant industry effects. The Transportation
Security Administration (TSA)
recently announced that it will issue security guidelines by September
30, 2003 for screening motor carrier cargo and protecting against the
threat of terrorism. While the scope of these guidelines is unknown,
they are likely to address at least three issues: trailer locks, border
crossing, and hazmat transport.

Trailer locks / container seals

There are fears that a terrorist could use an unlocked trailer or container
to deliver a bomb or weapon. A proposed solution is to require locking
of trailers, using conventional mechanical locks, electronic seals (e-seals),
or both. TSA
recently announced that its intention to require locks on all trailers.

There are two main types of cargo seals. Indicative seals are designed
to detect tampering or entry. Barrier seals are designed to prevent
tampering or entry. Traditional manual indicative seals are made of
plastic or wire, and are inexpensive. Barrier seals often include a
bolt that can only be removed with special tools. Electronic seals typically
combine elements of traditional manual seals with radio frequency identification
tags.45
In the event of tampering, a radio frequency signal alert is sent to
a central communication center. A number of e-seal technologies are
currently being developed and refined, with support from the U.S. DOT.

Much of the motor carrier industry would experience no significant
productivity effects from a trailer locking rule. The cost of a conventional
lock is small (under $50). Many carriers already have a policy of locking
trailers to prevent cargo theft. Truckload carriers open and close a
trailer only once per trip, so the incremental time associated with
locking and unlocking is negligible. Only carriers making frequent deliveries
might notice a slight increase in total transport times. The electronic
seals currently under development are generally more expensive, and
would require re-use at least until prices come down.46

ATA and Roadway
Express have voiced concern that if the locking rule applies to all
trailers at all times, it will raise costs for LTL
carriers. This is particularly troubling to some LTL
carriers if the trailer locking rule is coupled with more frequent trailer
inspections. However, officials at UPS
and FedEx have stated publicly
that they do not appose a mandatory locking rule.47
One outstanding question regarding the rule is how to assign responsibility
in the event that a trailer is dropped at a shipping facility, or if
more than one carrier is involved in a move.

Border crossing

One industry segment that felt the effects of 9/11 almost immediately
is surface transport between the U.S. and Canada/Mexico. Thorough inspections
of trucks and trailers at the U.S. northern border resulted in extensive
delays – reportedly 15 hours and longer in some cases. As a result,
some Canadian automotive plants were forced to curtail operations because
of a lack of parts. The situation has since improved somewhat, though
delays are still longer than pre-9/11.

All the major trucking industry associations recently agreed to participate
in the Customs-Trade Partnership Against Terrorism (C-TPAT)
for U.S.-Canada shipments. The intent of this voluntary program is to
prevent the importation of weapons of mass destruction. C-TPAT
participants sign an agreement committing them to follow a set of security
guidelines. In return, participants can benefit from a reduced number
of Customs inspections and thus reduced border delay. The cost of compliance
with C-TPAT
for motor carriers is not publicly available. Because the program is
voluntary, participants clearly believe that the delay reduction benefits
outweigh any costs.

Hazardous materials transport

Perhaps the motor carrier industry most affected by heightened security
concerns is hazmat transporters. An estimated 2.5 million drivers move
about 800,000 hazmat shipments daily. In late 2001 and early 2002, FMCSA
conducted Security Sensitivity Visits with approximately 38,000 hazmat
carriers and other high-risk trucking-related operations. Industry cooperation
in this extensive effort was high, and the burden on motor carriers
was minimal. FMCSA
recently announced that the agency will revisit about 1,500 carriers
of the most dangerous hazardous materials to assess implementation of
security steps.

The TSA
is expected to release new security requirements for hazmat carriers
in 2003. The extent of these requirements is currently unknown. Some
options under discussion include requirements for hazmat carriers to
provide armed escorts, pre-notify states about hazmat shipments, track
trucks using GPS
transponders, and equip tractors with electronic ignition locks. If
adopted, the cost and productivity effects of some of these proposals
(such as armed escorts) would be significant, and could hit carriers
differently. One trucking industry group has noted that if GPS
tracking is required, the costs to fleets that don’t currently
employ the technology could be five times higher than for fleets that
already use GPS.48

A study ordered by Congress found that while it is technologically
feasible to track hazmat shipments and determining if they deviate from
pre-planned routes, such a system would require extensive resources
and would trigger numerous false alarms, particularly if required for
all shipments classified as hazardous materials.49For example, approximately 45,000 loads of gasoline move every
day, most for short distances, and tracking all of these shipments would
be extremely costly and possibly of little value. Industry groups have
also warned against some of the other hazmat regulations under consideration,
noting for example that pre-notification of shipments could actually
jeopardize security if the information fell into the wrong hands.50

Another expected regulation affecting hazmat carriers concerns driver
background checks. The Patriot Act requires the FBI
to conduct criminal background checks of applicants for licenses or
renewals to operate trucks containing hazardous materials, and to notify
DOT of the results
of the checks. Based upon the results of the FBI
checks, DOT
must then determine that the applicant does not pose a security risk
or deny the license. States may only issue a license or a renewal to
operate a vehicle containing hazardous materials once DOT
has determined the applicant is not a security risk. FMCSA
is expected to issue an interim final rule soon implementing these provisions.

It is difficult to predict how background checks on hazmat carriers
will affect productivity in this sector. Much will depend on how strict
the checks are and how many applicants are ruled ineligible. The rules
could significantly reduce the number of licensed hazmat drivers in
the short run, a problem that would be compounded if new TSA
regulations require hazmat drivers to work in teams or relays. This
may also exacerbate affect driver shortages among general freight carriers
if the total labor pool is reduced.

10.2 Possible Solutions

Given that security concerns do not appear to be currently having significant
negative effects on the motor carrier industry and the shape of future
regulations is unknown, we have not identified specific public or private
sector solutions to this issue. However, several carriers have suggested
that federal action is needed to revise the definitions of hazardous
materials. Some feel that the current definitions are excessively broad,
grouping materials that are of little danger (such as hairspray) with
materials that could clearly cause significant destruction (such as
explosives). This situation may prevent attention and resources from
being focused on the shipments that pose the greatest threat.

10.3 Research Needs

Freight security is already the subject of intensive research activity.
For example, Battelle Memorial Institute is currently under contract
with DOT to
study trucking security options such as vehicle tracking services and
technologies and anti-theft devices. Clearly additional research will
be needed to assess the effects of the expected TSA
guidelines for motor carriers once these guidelines are formalized.
At the moment, no additional research appears needed.

11 DELAYS AT PORT FACILITIES

Port facility delays, and the related issue of poor chassis condition,
are crucially important to trucking firms that pick-up and deliver freight
to ports. Port drayage firms operate in a highly competitive market,
with many small firms and owner-operators competing to provide services.
These firms typically use older equipment, charge low carriage rates,
and operate on very slim profit margins. Delays at port facilities impose
a cost on these firms in lost revenue and profits. The reduced efficiency
of this critical link in the transportation system also imposes costs
on the downstream customers of port drayage services.

Generally speaking, port facilities can impose long wait times on truckers
with impunity since the ports do not bear the economic cost of the delay.
Long wait times and congestion at port facilities are caused by a set
of factors that are fairly distinct from the wait times encountered
at other shipper facilities. These include lack of sufficient gates,
limited hours of terminal operation, poor chassis maintenance, and vessel
bunching.

The Maritime Administration recently conducted a survey of port facilities
to determine which system elements of the intermodal transportation
network were operating in an acceptable manner.51
Unacceptable conditions were defined as those where “efficient
and effective cargo movement cannot occur … nor can additional
cargo flows be easily handled.” Table 8 shows the results for
two system elements, paperless gates and the length of gate hours. Gate
hours of operation was deemed to be a problem at 38 percent of the largest
container ports and 11 percent of all ports. Gate automation is a consistent
problem at about half of all ports, both large and small.

Table 8. Percent of U.S. Ports Reporting Conditions Unacceptable

System Element

Top
15 Deepwater Container Ports

All
ports

"Paperless" gates unavailable

50%

52%

Length of gate hours unacceptable

38%

11%

11.1 Causes and Industry Effects

Gate access

Ports often do not provide enough gates and only operate these gates
during limited hours, creating lines to enter terminals that can back
up for miles and wait times that can stretch into hours. Limited gate
access can be attributed to several factors:

Peaks in daily traffic are caused by the desire of firms for morning
pickups and afternoon deliveries. Additionally, a mismatch between
the hours of operation of marine terminals and those of the steamship
lines and rail terminals exacerbates the need to move containers during
peak hours.

Rail terminals are typically open 24 hours a day and steamship lines
unload containers during hours when terminal gates are not open. Terminal
gates are typically open during normal business hours, sometimes on
a 9 – 5 schedule. Required breaks can cause gates to be closed
during these hours as well. The need to move containers during these
restricted hours to meet the pick-up and delivery schedules of customers
causes congestion.

Labor agreements often prevent expanding the hours of gate operation
limit hours of operation. In some cases terminal operators can keep
gates open longer by paying overtime to the required staff. Some labor
contracts require a full crew be paid for an 8-hour shift, even if
the gates are kept open for only a couple more hours. Terminal operators
argue that restrictive labor practices make the cost of keeping gates
open prohibitive. Unions tend to see restrictions on labor hours as
one of the key benefits derived from negotiated labor contracts. The
tense relationship between labor and management in marine terminal
operations has made resolution of this issue difficult.

Chassis condition

The steamship lines own an overwhelming majority of the chassis used
to haul containers. Some steamship lines do not properly maintain these
chassis, and in some cases drivers are required to move chassis to repair
facilities without compensation. When no roadworthy chassis are available,
drivers may face the choice of waiting for a chassis to be repaired
or using an existing one that may have mechanical defects. While the
steamship lines are required by law to maintain safe chassis, the driver
is most often the one who is punished through fines and tickets.

A related problem is that ports frequently do not maintain enough space
for chassis storage, resulting in chassis being stored in any available
space. This creates traffic impediments within the terminal, further
increasing wait times and congestion.

Vessel bunching

Although port facilities are open seven days a week, the fixed schedules
maintained by shipping lines can result in a number of vessels arriving
at the same time. Vessel bunching causes vehicle congestion as trucks
line up to load or unload cargo. The more efficient scheduling of vessel
arrivals and departures may require a collaborative effort between port
authorities. Shipping lines often have difficulty predicting the arrival
dates of their vessels at particular ports since these often depend
on uncertain arrival and departure dates from other ports.

11.2 Possible Solutions

Gate access

While a negotiated settlement between labor and management is the most
important element to solving the problem of port congestion, there are
improvements that could be made to terminal gates that would also reduce
congestion. These include the use of reversible gates, two-stage gates,
or specialized gates.

Many terminals have reversible gates that can be used for either
inbound or outbound traffic. These gates are located in the center
of the in-gate / out-gate complex and have red and green lights that
signal the direction of traffic flow, much like typical toll plazas.

Some terminals also use two-stage gates. These gates use telephones
or intercoms in the first gate stage to verify driver and shipment
information before gate inspection. This allows problem cases with
inadequate documentation to be segregated and dealt with before they
clog the gates. Two stage processing also allows interchange documents
to be printed before a driver reaches the final gate, speeding processing.

Specialized gates can be used for specific traffic types or customers.
Some facilities have specialized bobtail gates for tractors without
trailers or chassis. Other terminals have separate gates for mail
or particular companies. These gates can reduce processing requirements
for some types of shipments. Technology, such as handheld computers,
can be used to automate the processing of paperwork at gates and reduce
wait times.

The complete automation of document processing and container tracking
is an issue subject to intense negotiation between the International
Longshoreman and Warehouse Union (ILWU)
and terminal operators. In many terminals, the full realization of the
benefits of this technology will not be obtained until a satisfactory
solution can be worked out between labor and management. In the most
recent dispute between the ILWU
and west coast terminal operators, labor has required that the implementation
of new technology be accompanied by the employment of union labor for
any new jobs created.

Motor carriers and the ILWU
have proposed the use of staging areas in terminals where truckers could
drop their containers instead of spotting them in the yard, and possibly
pick up cleared containers as well. The ILWU
has also recommended the use of off-dock yards where empty containers
would be stored so they do not interfere with the handling of loaded
containers.52
Terminal operators argue that these operations are not economically
feasible because they would require the labor of ILWU
workers, who make an average of $100,000 per year.

Some policy makers have proposed to fine terminal operators whose operations
regularly require port drayman to wait in long lines to enter terminals.
This has become a concern for local authorities because long lines at
terminals can sometimes spill out onto public streets, causing congestion
on these roadways as well. Truck idling at terminals also contributes
significantly to air pollution. In California, the governor recently
signed a bill (AB2650) that levies fines ($250 per truck) on terminal
operators if vehicles wait for more than 30 minutes to reach the outside
gate of a marine terminal in the state. Terminals that set up an appointment
system or operate during non-peak hours are exempt from the fine. It
is too soon to assess the effect of this legislation.

Some have suggested that drivers should require payment for time spent
waiting at ports. This is not unprecedented – some trucking companies
require shippers to pay their drivers for the time spent waiting. Currently,
very short drayage movements are usually billed by the hour, while longer
drays are billed by the mile. If terminal operators or liner companies
were required to pay all drivers for time spent waiting, they would
have an economic incentive to manage port operations so that wait times
were minimized. The large number of independent operators competing
in the port drayage business has so far prevented the negotiation of
more favorable terms of payment for port draymen.

Automated scheduling systems could allow truckers to make appointments
for the pickup or delivery of containers to a port. Implementation of
these systems has lagged due to the fact that they require terminals
to make investments in systems that primarily benefit drayage operators.
Nonetheless, some studies have suggested that differential pricing of
gate access could allow port facilities to recover their cost of investment
in scheduling systems by charging fees that reflect the costs associated
with keeping gates open longer, or allow for increased prices for choice
pickup or delivery times.53

Chassis condition

In September 2002, California enacted SB 1507 to address the port chassis
condition issue. SB 1507 seeks to halt the practice of steamship lines
releasing unsafe intermodal trailers to drivers. The bill requires equipment
owners to certify, under penalty of perjury, that their chassis are
safe. Under this new law, tickets issued for chassis violations will
be assigned to the entity with ownership of the chassis. Firms that
are not complying with the law can have their motor carrier of property
permit suspended if they receive an unsatisfactory rating from the relevant
safety authorities. The Teamster’s union promoted this legislation
and intends to advocate for similar laws in other states. California
is not the first state to vote on legislation to protect truckers against
being supplied with unsafe equipment. South Carolina, Louisiana, and
Illinois have passed roadability legislation, and bills have been proposed
in New Jersey, Pennsylvania, Florida, Virginia, and Texas.

The ATA has
urged the implementation of a national rule on chassis roadability.54
Local laws and regulations that increase costs to steamship lines at
only some ports may divert traffic to ports that don’t have these
rules. ATA
would like to see responsibility for chassis safety assigned to the
owners of the chassis through federal legislation or rulemaking. Additionally,
they have argued that chassis safety inspections should occur at port
facilities and should focus on the inspection and maintenance practices
of steamship lines.

Currently, liability for unsafe chassis is covered under the policies
of motor carriers. This assignment of liability doesn’t encourage
equipment owners to place a high priority on maintenance. Rules that
make ownership of this equipment more burdensome for steamship lines
may encourage them to try to shift the burden of ownership to trucking
companies. While in the U.S. the steamship lines currently own most
chassis, ownership of this equipment in other countries is concentrated
in trucking firms.

The characteristics of the intermodal market have made resolution of
these issues difficult. Steamship lines are mostly large, foreign-owned
firms who purchase the services of ports, terminal operators, and drayman.
While drayman could charge the shipping lines fees for wait times incurred
to obtain a roadable chassis or the movement of damaged chassis to repair
stations, they operate in a highly competitive and fragmented market.
The steamship lines have enough market power that they can choose to
do business with carriers that do not impose these restrictions. Port
authorities could seek to impose these requirements, but they compete
with other ports for the business of steamship lines. Maritime terminal
operators do have antitrust immunity to meet and coordinate activities
and service prices. It is thus possible for them to collaborate to impose
rules for the purchase of drayage services in ports.

Research could play a role in solving the problem of port gate delays
by focusing on the following issues:

Local unions have negotiated different work rules at different ports.
It would be useful to document innovative labor agreements that reconcile
the integration of new terminal technology with the protection of
the rights of workers.

Research on the cost of port gate delays for draymen, shippers,
and the economy could serve to highlight the magnitude of the problem,
and help advocates push for solutions.

Research on domestic and international best practices in facilitating
intermodal transfer of containers could serve to highlight available
technological or operational solutions to reduce vehicle wait times.

The following research efforts could contribute to addressing the chassis
condition issue:

Collection of additional data to quantify the safety effects of
improperly maintained chassis.

Analysis of state laws that address chassis roadability and could
identify potential models for adoption in other states or at the Federal
level.

Assessment of mechanisms that could increase the bargaining power
of port drayage firms and allow them to better negotiate service agreements
that reduce wait times for chassis.

Research could also examine the feasibility of more efficient scheduling
of vessel arrival and departure dates. Preliminary studies to support
this might include assessing economic benefits of reduced vessel bunching
and examining market and institutional barriers to technological and
operational solutions.

12 SUMMARY

According to the motor carrier industry experts interviewed for this
study, the issues that pose the greatest threat to trucking productivity
and service quality are: rising insurance costs, changes to the hours
of service rule, and fuel price volatility. Nearly all interviewees
placed these three issues near the top of the list in terms of importance.
Interviewees identified three other issues as being somewhat less pressing
but potentially having significant negative effects: urban congestion,
new emissions and fuel standards, and driver waiting and loading times.
Two other issues assessed in this study, security concerns and delays
at port terminals, were not considered important by most interviewees,
the former because major new security regulations have yet to be implemented,
and the latter because the issue affects only a small segment of the
motor carrier industry.

Rising Insurance Costs

Most of the trucking companies we interviewed identified the steep
rise in insurance rates as the number one problem they currently face.
The cost of motor carrier insurance has increased by at least 40 percent
over the last two years for many firms. Rising insurance premiums are
caused by two factors: poor performance of insurance company investments,
and an increase in expected pay-outs due to rising damage awards and
the effects of 9/11.

Many carriers feel the problem can only be solved though tort reform.
Carriers have responded to rising insurance premiums by relying more
on self-insurance and forming risk retention groups. Many have also
sought to bring down insurance rates by reducing their accident risk
though driver safety programs. There may be a government role in promoting
the expansion of existing industry safety programs to share information
and voluntarily achieve higher safety standards.

Hours of Service Rule Changes

The Federal Motor Carrier Safety Administration is planning to issue
a revised hours of service (HOS)
rule in the near future. The nature of the revisions is unknown at this
time. While HOS rule changes
would likely increase highway safety, more restrictive rules could make
vehicle and driver scheduling less flexible, and possibly raise the
cost or lower the quality of service that trucking firms can provide.
The greatest effect of a changed HOS
rule would fall on the regional and long-haul for-hire truckload firms.
Local trucking operations rarely reach HOS
limits, and LTL and private
carrier operations can be more easily adapted to rule changes.

Alternative approaches to regulating HOS
have been proposed. Some policy-makers have suggested that the Fair
Labor Standards Act should be applied to the motor carrier industry
to require overtime pay. This would provide economic incentives for
firms to reduce the hours their drivers work. Another alternative, possibly
to complement HOS regulations,
is a voluntary program encourages the use of best practices. The industry
already has significant economic incentives to reduce fatigued driving
and its associated risks, and a voluntary program could fit the diverse
nature of the motor carrier industry while still accomplishing safety
goals.

Fuel Price Variability

Many motor carriers have little ability to absorb rapid changes in
fuel costs. Most carriers operate with slim profit margins, and because
of keen competition are unable to raise rates in response to fuel price
spikes. Historically, trucking firm bankruptcies have been closely correlated
with fuel price increases. The problem is compounded by boutique fuels,
such as those sold in California, which result in less competition among
refineries and higher fuel prices.

Motor carries employ a number of strategies to hedge against changes
in fuel price, including the use of swaps and options, or purchasing
fuel on the spot market or at the wholesale level. These options are
generally available only for larger carriers, however. Many view public
sector intervention in the issue of fuel prices as inappropriate. However,
several bills have been introduced recently in Congress that attempt
to mitigate the effect of fuel price changes (particularly on smaller
carriers) by requiring carriers to impose a fuel price surcharge on
shippers.

Urban Congestion and Travel Time Reliability

Urban congestion causes an increase in travel times for motor carriers,
and perhaps worse, a reduction in travel time reliability. Carriers
respond to congestion by selecting alternative routes, shifting to off-peak
periods, or scheduling trips with a greater travel time buffer. However,
many carriers are unable to avoid congestion because of shipper demands.
A recent survey of California carriers found that over one quarter reported
often missing schedules due to congestion.

While elimination of urban congestion is virtually impossible, a variety
of strategies can reduce its extent or at least make it more tolerable.
For example, truck drivers and dispatchers can make use of real time
traffic information systems to help minimize delay. Greater benefits
could be realized if carrier route planning systems were integrated
with measures of travel time reliability. There has been recent interest
in truck-only lanes or truck freeways as a way to serve goods movement,
reduce congestion, and improve highway safety. Toll-financed truck facilities
are being considered in Southern California and Virginia.

New Emissions and Fuel Standards

There is widespread concern that the new emissions standards for heavy-duty
engines, which began October 1, 2002, will cause lower fuel economy,
lower horsepower, and the possible need for more frequent engine maintenance.
Because of these side effects, particularly uncertainty over engine
reliability, motor carriers have been reluctant to purchase the newly
certified engines. Instead, fleets have been purchasing larger numbers
of older engines, and also holding on to their current trucks longer
than they normally do. It is too soon to determine how the new emissions
standards have affected fuel economy. However, it appears that the industry’s
fears about fuel costs and maintenance problems with the new engines
have been exaggerated. The emissions standards that will take effect
in 2007 pose a far greater challenge for engine makers, and may generate
more concern about reliability and performance.

Driver Waiting and Loading Times

Long waiting and loading times for truck drivers impose substantial
costs on the motor carrier industry. For the most part, this problem
affects for-hire truckload carriers only, and is reportedly worst in
the grocery sector. At its core, the problem is a result of the fact
that shippers do not directly bear the cost of the driver and equipment
delay they cause. As such, only a change in market structure is likely
to fully resolve this issue. But a number of strategies have potential
to reduce the burden of long driver waiting and loading times. One is
to change shipper/carrier contracts so they address wait times and allow
for detention charges if necessary. Some carriers simply refuse to serve
customers with long wait times, and are able to do so because of their
high service quality and low rates.

Other strategies involve changes to loading dock practices. For instance,
allowing 24-hour delivery or providing a mechanism for the delivery
of freight that arrives early could reduce truck wait times. Some receivers
give carriers keys to get into their yards so a driver can drop a trailer
and pick up an empty. Others try to get customers to do loading and
unloading, or at least to palletize loads. Some have argued that cooperative
industry efforts or voluntary programs could help reduce wait times,
such as a best practices guide developed cooperatively by carriers and
shippers. Another approach to implementing a voluntary program is to
develop an industry ISO
standard addressing loading and unloading practices in detail.

Security Concerns

The events of September 11, 2001 focused attention on trucking security,
including border crossings, hazardous materials transport, potential
contamination of food shipments, and the potential use of a truck trailer
to deliver a weapon. Although the heightened focus on security has changed
the operating environment for motor carriers, our interviews suggest
that, at the moment, motor carriers are not generally feeling adverse
productivity effects. Many carriers appear to welcome the increased
emphasis on security. New security procedures and regulations for trucking
are expected, however, and may result in more significant industry effects.

The expected requirement for trailer locks has concerned some in the
LTL sector, who open
and close trailers frequently. But the costs and productivity effects
on the industry are likely to be minimal. Concerns about security of
U.S.-Canada shipments are being addressed by the voluntary Customs-Trade
Partnership Against Terrorism (C-TPAT).
The cost of compliance with C-TPAT
for motor carriers is not publicly available, but is likely outweighed
by the benefits of border delay reduction. The motor carrier industry
most affected by heightened security concerns is probably hazmat transporters.
New regulations on hazmat carriers are being considered, and may include
requirements for hazmat carriers to provide armed escorts, pre-notify
states about hazmat shipments, track trucks using GPS
transponders, and equip tractors with electronic ignition locks. If
adopted, the cost and productivity effects of some of these proposals
(such as armed escorts) would be significant. Some carriers have suggested
that federal action is needed to revise the definitions of hazardous
materials because the current definitions are excessively broad and
may prevent attention and resources from being focused on shipments
that pose the greatest threat

Delays at Port Facilities

Delays at port facilities and poor chassis condition at ports are serious
issues, but affect only a small segment of the motor carrier industry.
Similar to shipper loading docks, port facilities can impose long wait
times on truckers with impunity since the ports do not bear the economic
cost of the delay. But the long wait times at port facilities are caused
by a set of factors that are fairly distinct from the wait times encountered
at other shipper facilities, including lack of sufficient gates, limited
hours of terminal operation, poor chassis maintenance, and vessel bunching.

A number of operational and policy solutions are available to reduce
port facility delay. Overcoming some of the barriers to more efficient
port gate operation, such as longer operating hours, will require a
negotiated settlement between labor and port management. Other more
practical solutions include use of reversible gates, two-stage gates,
specialized gates, or terminal staging areas. Some policy makers have
proposed to fine terminal operators whose operations regularly require
port drayman to wait in long lines to enter terminals, and such a bill
was recently signed in California. Several states have passed laws to
address the issue of poor chassis condition at ports, and ATA
has urged implementation of a national rule on chassis roadability.

1Productivity is generally
measured in terms of output obtained for a given level of input. For
the trucking industry, productivity can be measured in terms of cost
per mile or per ton-mile, labor hours required to deliver a cargo shipment,
revenue per tractor, revenue per employee, and other measures.

2Mercer Management Consulting.
"Just in Time to Wait: An Examination of Best Practices for Streamlining
Loading / Unloading Functions." Prepared for The Truckload Carriers
Association. June 6, 2000

6 The estimates in this
table are derived by ICF Consulting from a variety of data sources,
including the 1997 Economic Census, the 1997 Vehicle Inventory and Use
Survey (VIUS),
the FMCSA
database of for-hire carriers, ATA's North American Truck Fleet
Directory, University of Michigan Professor Francine Lafontaine,
and publications from Transportation Technical Services including The
Motor Carrier Industry in Transition, Blue Book, America's
Private Carriers .

7 "Other" includes
package service with $24 billion in revenue (mostly UPS) and household good movers with approximately $7 billion in
revenue.

8 This figure is used
by Transportation Technical Services in the 2002 edition of the National
Motor Carrier Directory to estimate TL
revenue. Discussions with TL firms
and industry experts confirm that this is an acceptable basis for an
approximate estimates.